HRTG - Earnings call transcript Q2 2019 | Heritage Insurance Holdings, Inc.

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Operator

Good morning and welcome to the Heritage Insurance Holdings Second Quarter 2019 Financial Results Conference Call. My name is Cole and I will be the operator today. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. Please note this event is being recorded. now Executive turn Vice would to conference I Soleimani, Arash President Instructions] like the to over [Operator at Heritage. sir. ahead, go Please

Arash Soleimani

Good These section your joining to for and review our where morning at We will release available and you be for call invite or archived. the us earnings visit are our convenience. of today. Investors earnings website, materials investors.heritagepci.com, the thanks replay

within These Today's Reform the are contain call statements meaning Litigation current XXXX. forward-looking Private changes in management's subject Act the on circumstances. of are to statements and of based Securities and may expectations uncertainty

In our to press and results differ that risks filings, in our earnings detail material we future release cause from our may expectation. SEC

obligation any make. statements we may statements to update Our of have as are forward-looking today, and no we

the earnings and For described from materially statements to our on a to that annual statements, refer and filings. those results our could please release of report forward-looking other XX-K, description SEC cause differ in forward-looking the risks Form

With Financial Chairman Officer, our and Lusk, Bruce and Kirk us Chief Chief Lucas, our today the Executive on Officer. are call

I will Bruce. over call now the turn to

Bruce Lucas

Earnings Thank you to XXXX I all welcome of you, Second Quarter would Arash. our like to Call.

thank the our all begin like dedication our call, we their I'd company. employees for Before of to to

Despite severe quarter second weather losses, we operating results. had excellent

less in have execute areas states like diversification continue to while strategy especially in our in on other Florida, fraud-prone We reduce the to that is exposure designed growing Tri-County volatility.

year-over-year was quarter-over-quarter. we Across business the new year-over-year, strategic XX% In alliance In new partners. ex-Florida but Florida, XX% business increased premium business XX% alliance, generated increased XX% ex-Florida, sales quarter-over-quarter. year-over-year platforms, decreased outside accelerating of with and expand X% In premium entire Our personal states the and footprint XX% significantly Florida. business new new of premium new our increased XX% personal and launch our are quarter-over-quarter. northeast, across southeast, as premium

and In Tri-County. Tri-County unique in insured in a in competitors. Tri-County general any we Florida occurring to approach not we is the our of is Florida's do dropped offset exported the believe of TIV the We away strategic remarkable growth have This $X.X or from in second year-over-year. used total non-renewals with diversifying billion our quarter, that to value a

Although Florida new business premiums line line continue more to of top bottom portfolio outside litigation are reinsurance is growth are costs. versus lower, companies because peer they believe will Long less we and Tri-County on there term, of and significantly profitable outperform broad our focus profit. that

in year cause Florida Tri-County and higher across We adverse to the ratios strongly in that will continue believe loss the prior aggregation reserve development sector.

of to related the it severities. the development Heritage With Tri-County that and is plague market belief continues have it exception our claims Florida to is that adverse Insurance, elevated largely

Tri-County then of pull super-regional that away Since Florida. have Three the and Florida from has began evolved out our years of we we outside to of to from carrier TIV XX% Florida. a a ago diversify company

to improved volatility means the at Tri-County period, our and reserves. we for percentage related claims and all-time related claim related the of lows During Tri-County. and continually claims this have Tri-County time to are less losses to statistics Fewer policies

a carrier only prior quarters that the favorable alone year I'm surprised report a development in stands As result, Heritage to as row. four not

by and exposures our accurate the a and conservative have the favorable I've have different. in is as philosophy despite evidenced Tri-County highest development. year reserving group the and times to we setting peer in Our noted loss we Florida consistent believe prior reserves our lower several been reserves that approach having more

of of newly and the Fenefit received roof-related particular, was a reform. during large the events an as second or quarter. and a In Florida prior reported of This for we the in had issue claims second AoB one statutory hail PCSE July in quarters [ph] particularly in we of influx in Florida advance quarter X claims surge for Assignment

the print. a that not states a PCS quarter, impacted southeast multiple the we was quarter, we our which to had book reinsurance Unlike southeast event the total have [ph] first events large single of Including trigger did recoveries. Florida in enough that four impacted PCS

As a approximately accident million all $XX.X of losses weather result, current we that across metrics. otherwise stellar quarter overshadow and incurred severe quarter

is our If paid to majority of a It claims of that is surge release the claims are these IBNR is quarters. Reported truly do versus IBNR to a AoB and develop, potentially have noting future to with we Incurred will worth this amount the significant related not or reserving vast philosophy. this Not But approach related in and/or loss consistent in

until that than establish incur if adverse now sufficient it and rather prudent later. to reserves occurs, development However, is

management. Moving book capital to at repurchased million discounted $X.X on stock a of We common value.

fair stockpiling value. at additional we'll retire in to opportunistic been have free We holding below shares is company cash price as and intend the and long as share be our XXXX

more now over on our provide Kirk to will details call turn the to I financials.

Kirk Lusk

Bruce. second of you, $XXX,XXX during income the Thank and quarter million XXXX. Net the down morning. was Good $X.X reported quarter for was from

July press quarter driver the were losses the in main our weather XXXX announced of release, XX variance. year-over-year of As second during the

Gross in Imports were quarter which Florida. from began the the region Tri-County The in reflects of in in the reductions since area quarter the XXXX. one for written XXXX the was second derisking premium the Tri-County premiums continued of import $XXX down derisking the second million quarter reductions quarter of of $XXX largest for second XXXX. the million was for drop the

of as over marketing the million. area. and anticipate the of in We outside the year-over-year reduction In-force the Tri-County by significant Largely area alone. by million quarter over area the region offsetting Tri-County and in-force year-over-year will exposure and in outside Tri-County our the decreased Tri-County premiums that the evaluate that premiums Tri-County area growth our $XX in $XX of outside by efforts XXXX in $XX grew continue direct accelerate to million area over our continue we second

June year are CAT/XOL down increase June offset savings synergy contract and to X, the quarter first the X, the premiums quarter decrease other [indiscernible] The earned also was to partially the in in X.X% quarter. treaty of by an X.X% from gross XX% the of and are earn reinsurance by from reduction of the year-over-year NBIC Despite the XXXX elimination from on last gross XX.X% premiums XXXX which quarter XX.X% significant amount down a and X% reflects flat related XXXX. Ceded NBIC's increases structures. reinsurance NBIC derisking, relatively share December of and from net share prior

than decrease of earned in net the was in just slight the ceded by premiums XXXX were X.X% XXXX earned gross quarter offset mentioned. from the reflecting premiums second premium reductions which quarter more the second up earned

ratio loss vertically the of net to XX.X points the LAE quarter and the by from loss for XX.X% and ratio loss multiple impacted network. the points. of XX.X% year-over-year year integrated quarter. is quarter losses events second compared to weather the chance in The activity of for the The by XXXX in attributable remainder or for up Losses hail non-catastrophe were contractors' the from variance variants loss development quarter XX.X% quarter XXXX. accident $X.X our in for net alliance reduced XX.X was the million Current second ratio prior and

with purchased during up were the reinsurance $X.X accounting changes cost and our first obtained due half of benefit programs. the the share acquisition to million to exploration commissions XXXX reduced Policy of quota predominantly associated ceding

due offset at quarter second prior acquisition cost relatively to from at and million to administrative $XX.X quarter down are and first $X predominantly million of reduction. commission from second XXXX flat by $XX.X quarter reduction million is partially the in of XXXX. XXXX year the was XXXX ceding expenses General incurred The the and which integration a quarter from

for second from XX.X% the quarter The combined XXX% weather XXXX. the of the previously with ratio. a relatively quarter premiums percentage was of flat The ratio increase earned is which losses as discussed as expense up a the net reflects

Book $XXX.X end the tax million equity June reflects first $XXX The the gains QX from at end the the quarter stock by per for affected XX, and income from increased offset XXXX $XX.XX share the of at investments million shareholders is Shareholders' and dividends partially quarter net and to predominantly the up of in at at $XX.XX unrealized change XXXX. $XX.XX, net buybacks. year-end. to value

invested $XX are of related QX. billion to year-end assets claims. $X.X end the plus of by assets Total million reinsurance from hurricane increased the recoverables cash at receipt driven mostly Total

I and are to Bruce now available questions. take your

Operator

Our We Instructions] will [Operator Mark the comes SunTrust. Please first question-and-answer today question with now ahead. session. Hughes from begin go

Mark Hughes

Thank morning. you. Good

get is full the premiums should On that we rate the one, our reinsurance How new on about quarter? treaty? think for that Florida $XXX the when QX ceded run million this we

Bruce Lucas

reflects the you from the month at one a reduction would I we about quarter can't in at more multiply type you of you that the we're that so QX to QX, like it fully magnitude bit when quarter-over-quarter think have When going will look reduction same that, reduction, get a forward. going reduction and only little extrapolate of But to the of look third xX.

Mark Hughes

how should how about million Then little we G&A expense think is number? Is Or $XX that's the Okay. $XX bit to a volatile? a been that about good that? million,

Bruce Lucas

side. to that and on the little initiatives, at the both we a we up think growth have I claims going probably tick as look on some it's the bit of

the at side slightly. going some we're but move that dollars, look incur. up claims the the I going last So of actually will will activity to to over

Mark Hughes

that that in captured surge have to QX in Okay. a Talk over QX going about ratio? in QX. And your into the then on loss the Is AoB. losses? filings Was spill the

Bruce Lucas

before was We, is everyone AOBs to other to all trying lot and was big what they the up participate there insurers wind in else, saw were scam. the A of a market the get and It ramp miscellaneous related out events. along that surge, QX, No. to in there saw We X July deadline, hail we raising captured as with in it the Mark. their recruit in to AoB increase.

you severe Those a our the were these going contractor getting trend tell doing the because that past don't quarter in put to to million have don't we develop, to we can't these is things four captured for be reserves that losses according have and make to have to we've a trend. exactly if make, us time activity and happened We've One of that, unfortunately development been we're lot latest like see quarter-over-quarter. they that not philosophy like if have but favorable out. that release. doing quarters, AoB we protocols. about know. we'd sure losses reserving things are the rather our and reserves so weather it We number The that's change reserve $XX.X wrong But like of losses you until reserving hard happens, standard have when forward reserves in up When majority we the should vast your increase claim significant an put IBNR. to the

Mark Hughes

when we But keep called XX that. I'll make ask a Or for question. for buffer think of just one out the ought think do that If strip underlying in assumptions normal -- modeling would more about go-forward about severe this quarter weather. out your you? the ratio, from the on clearly some what you additional you apologize and points have I then loss Cat weather XX we was we say or you some basis, to volatility? points

Kirk Lusk

volatility reserves we put before, going we we weather volatility. of be weather be of PCS specially ex-Florida, those them overshot had saw southeast another Four a the was I to normal kind our but quarter should months. directly know it, you. bit But little QX There are you're unusual, I Florida. of hit them because we into one for up won't a and we events. a head think those. but said separate of what But have book rainy honest bit little QX of lot going in to buffer for four a year That's with and hopefully on always of Like this

expand the the continue frequency plan. than should we the we pretty out lower bottom lower you're long haul synergies, more business reinsurance as accretive over claim get footprint, more with going As and cost, line to it bounce our fraud But cost, to with be events. should

Mark Hughes

Thank you.

Kirk Lusk

Thank Mark. you,

Operator

Please KBW. go question our Christopher comes next ahead. from with And Campbell

Christopher Campbell

the quarter. good Congrats morning. Yes, on

Bruce Lucas

you. Thank

Christopher Campbell

as guess most assuming that increase I'm Was as off. forward? first I we there that be loss the is well we increase. about is rolling the ratio that my should question that else core anything model on that storm-related thinking of income drove

Bruce Lucas

I've factor higher IBNR by had. the in and quarter accident ratio that especially the that improving. We've loss is across just that claims core is can't noted masterly surge quarter. addition, The that claims Florida it we increased to generally in we getting say encapsulate impacted seen the for worse. environment really in I It's abuses reserves

heart the Florida you honest the why going away just which response rate got AoB in ones. I platform board. do to the from Florida to of and of fraud increases Tri-County, we to Osceola, it line don't higher to can and pivot we're change doing. Orange, you, away We're ever with or reform continue of just really years rate we're will particularly in We that the that's across last it an big in this that cost have see seeing format getting about other with plus for you be So goes personal across in the but been diversify making loss the three to just and XX% our fraud, the hit and to the average

Christopher Campbell

that drop seeing AoB the know a noticeable operational like litigation guys post you like I book? improvement been anything Florida reform, in claims metrics? there Has any Got you month only are on or it. a Are in. in your And

Bruce Lucas

Yes.

It right. exact looking or litigation, us quarter I -- amount say AoB were that actually can our saw lot quarter, stats have say, consistent a that because get claims second and didn't from early first on they tell pretty of in I'd the is of is July you that were money what You're you pretty we for. tell levels they

new So X, pre-July and up filing they're are those by because statute. not they the covered end AoBs suit

that much ones you a pretty new of total the terms seen We much only a in can XX we than about seen filed in as to that And the haven't and that I there's lag July was of And few have first think a XX had were decline. of Last hundred AoBs with that the sharp have really really comply them there. half tail July with us, or even AoBs we X, seen we a statute. because of which yes, since of half, tell lower I bit that. attempted off isn't

seen in of in rejected. We've claims So that pretty on off AoB they big July. drop front-end of month were summarily activity the amount the

Christopher Campbell

it. plain areas the Okay, open other like as to as got trying area for... that new And far there's creative about no up being

Bruce Lucas

to statute. They mention that strategies but point. top lawyers to trying them have different are. on try call, different issues my AoB well, circumvent on but kind we won't of I We're to goes as the those the of

of stop the in Florida. fraud areas can't You certain

of mechanism of into our to the operation areas it. You year The not Florida. outside way noticed can't is will exposure. numbers which to away. is is or why there, is a stop way we've every your It have so It actual steadfastly another. stop We've and going been fraud only the it derisking find it those out creep to of worse through growing one getting not

Christopher Campbell

sellers rate increases changed are interested more and companies you Okay, there in give higher offers? environment you us color of down took I M&A you has increases than but to entertain Florida, seeing outlook in can has thanks. -- aren't reinsurance guys the post rate then that know the willing did, competitors And guys who for you

Bruce Lucas

good market the paneled That's front. the on We've a question. at M&A really

another not business one I don't have only bigger the acquired any but they get that took itself. not interested business, don't they that teasing of We're in you We're reserves, but I they actually can within seeing of just a the Florida, entity Tri-County The come companies from the scale, companies. leverage I'm generally in carriers to potential lot are that seeing several in believe that tell Florida, there smaller buyers got to I a the We the have. buyers. aware in of on in perspective you company have are really reinsurance They're book activity those activity. for are sale M&A think is not

Christopher Campbell

which there a price Got book? there discount? a could be like if -- like it. book you trading large Would something a attractive. at look might might for XX% be Florida something was a more you get Would to It's get price discount

Bruce Lucas

can That's them over else's We've year business tell to we it, not outside reporting we plan. we reserving going never But would need away of that. in several frequency events quarter. stable has to find only Maybe. that let's development else the just profit last every as seen We're really general, our going from has find operating for to been is particularly company It's environments that inherit the that Orange to claim more hypothetical, and different Tri-County, a you everyone our Florida. I'm market. than need that just Florida. I our for we say to just We're incredibly -- working diversifying headaches. philosophy the Florida, say in to has in have us, find That outside this us. I'm But reason nobody and prior the expand company state very of the somebody favorable We're to we're looking is carrier of outside strong. years, going of -- of it has Osceola. been stick markets, it no.

Christopher Campbell

you Florida as very diversify and then but And ROEs? like pretty pretty it. market, it's Florida, volatile are outside usually high ROEs. premiums of the Got what large has

we does become any that Floridian with carrier? in change Florida, Now as high of -- compress? a should versus thinking differently be Florida of price book are will four about you to how predominantly about valuation as thinking a that to expecting your standing other And competitors as were function -- most just future change if the expand you I'm as those does outside thinking about competitors your you you're -- valuation the ROE you a the like people super-regional throw level Florida, outside then of and

Bruce Lucas

not we reasons of are would Florida I several there that. ROEs no, as say compressing expand are question. outside and for good really A the that

in fraud, of not claim stable, losses less don't We exist. books. that from just more in stuff. are them see not Florida. first see way Texas those don't we We've ratios are there's experiences First, removed markets. our don't purposely this we're the outside We're exist, we're ourselves It's also higher reason. we and in there's have very, PAs very stable. where retention Louisiana; you lower markets have They that that's -- in The

we and the cost significant The Florida don't think ROEs are expand we that are The because getting that we second we reason we're compressing they're fact that Florida. is in from ex-Florida. reinsurance as synergies away believe than higher significantly accelerating, footprint have in reinsurance

So our book, picking fluctuations in particularly up the right reinsurance coastal very are an southeast the a of we're synergies positive concentrations are where the books some line. that's that outside the get like Florida and companies more And things our more book of the lie and tremendous helping bottom of inland not company. peer those IBNR, and fraud you very, of for

part major a our about versus outside some travelers we a of you is the inland states of we on of pace these your differentiator, we Florida, going modeled. names the what coastal B of of lot and book against but competitive household book a yes, terms like see companies see, excess in head-to-head in at but that that There's well question which we're remarkable We have the with no carriers. are would we peers big see growing more normally Florida a states. lot, more I going that are think particular In in do one of the There's is of we're but landscape, focused doubt that. in

are working is Florida. footprint traction and away shares. moved We strategy gaining market we in our So from the

Christopher Campbell

quarter. for the Best third all luck Great. answers. Well, of on thanks the

Bruce Lucas

right. All Chris. you, Thank

Operator

Carletti question ahead. with comes And JMP. our Matt from Please next go

Matthew Carletti

few at I on I were you Thanks. back how events? Florida were the just North real you what questions. Carolina losses that rough the and but ex-Florida one, Matt hoping of Can Bruce, the splits JMP. split give mentioned weather know events us is A could biggest was Carletti quick. you out?

Bruce Lucas

Yes.

we a the me. I'm that we was think I much I at related have got in do to the in portfolio of have North don't bigger that Florida than Carolina. of related screens the know AoB now, I it Florida, in quarter. looking in the most to but kind we that front split of claims

Carolina events, these Florida. and pretty came the that loss out say Alabama Georgia, would Although North by hard majority got of pounded PCS I the of

Matthew Carletti

with sticking you on those so And you've talk then added what bit partnerships with pleased new you far? Can ex-Florida. are about coming Okay. -- other seeing larger some are How you're little along companies? a and

Bruce Lucas

more I going that very growth, Those can It that national have no partnered three partnerships with wheels the companies need there has actually never you I were. three consent is expand we're what to doubt up proprietary looking with. tell our products, we The the relationships half the three are markets relationship would carriers Seiko. with all well. They're National are in large that three fantastic. any and relationships of and Yes. actual been General Geico, data and We're in our the main those us that new their carriers, helping feel the we expectations the here we it. about about to that their definitely give second especially is would but have outperformed of year. release,

Matthew Carletti

Okay, great. the book the quick number new of on yield? in money just back what's the yield one And What's portfolio rates and the questions here. investment then pull with Thanks.

Bruce Lucas

about Our X.XX. X.XX, yield at is is duration

Matthew Carletti

That's yield? book

Bruce Lucas

Oh, yes.

Matthew Carletti

rate? new what's And then money

Bruce Lucas

have look to Don't the We'd rate. new that. at money have

Matthew Carletti

a Okay. lot. Thanks All right.

Kirk Lusk

you, Matt. Thank right. All

Operator

[Operator Sandler ahead. from Please our Instructions] And O'Neill. Barnidge next with question go John comes

John Barnidge

we written every quarter reduction that growth, growth should in in Thanks. positive we real Growth you're it's into look derisk know risk as since and a expect decelerated having XXXX. reduction eventually states given partnerships? forward, when QX the real turn the premiums I growth but has expansion Tri-County, strong

Bruce Lucas

saw pay season that It's positive a the cap factors the great it. premium first growth lot of during advance we didn't in question. just had honest derisk books season the of history. wind our a all We on the TIV Well, company's for with did second the in you. that play. want to of in We was be reinsurance into We quarter. have and kind to There's go the quarter that in largest that

down largest than company's history Second mentioned, premium yet in less quarter the went as in-force year-over-year. the our X% was derisk

that reduction. it So a very was negligible, but targeted was

at states that the which in second As positive for was derisk we're that the rate moving trajectory move plus we incredibly quarter. the into reinsurance seeing purposes we QX, the tremendous But ex-Florida growth do had growth strong, think to acceleration of has big us because a increases been forward. offset

John Barnidge

the Is derisking current does or quarter? way, the TIV $X.X maybe represent Tri-County completed the another the much during How a basis asked exposure? reduced in that on percent of billion

Bruce Lucas

place. less like pull not a lines. policy adverse you that good Investors is TIV we're going any you fraud derisking is all get numbers, let question. number. rough this and It's derisk There that we take how personal and at volatility I'll up business them there metrics trend. here, down there. our But to writing we'll for that get more development, try will more to is can tell that We're I

You least from could bank attrition. of every XX% year the policies disappearing just natural on at those to team

loss commercial particularly load we that still and that those for sufficient noticed in where on cover focused derisking not We've residential the are at that rate some believe [indiscernible] of done an what lot ratios underwriting that very is We are book. that so the insufficient we have in have there rates been market the a cap exposures and have companies Tri-County. believe you are residential, do commercial attritional we

John Barnidge

Okay.

if what Florida or lines so, you've you Florida? Do geographies mentioned no business? of got of M&A, interest in have really. M&A And You in interest outside

Bruce Lucas

is would our M&A great and closed focus. It were We another were Florida. transactions. zephyr targets, [ph] at both not focused question. again, outside of we on there Yes, we look so two they on the Yes,

are there was outside it the at We unless us. made look some there now out of just in lot not did have if market but that to Florida be would pursuing to we actively M&A, any deal right sense of crazy a M&A

John Barnidge

right. All

I last will question. be think my this

thinking dimension deterioration XX.X% it should long we is? increase just But how claims margin you book. rate your trying triangulate underlying sounded level be perspectively. inflation on Florida your You're what I'm like at getting a to about can earn

Bruce Lucas

depends to lost The Well, Florida there; in portfolio or be without able we place a the a the weather That increases. There that some wouldn't can elevated redevelopment unique that really XX.X%. with you Florida how in in mechanisms XX% of lost AoBs versus is book. depends really lot to has increase are and related the that that that two targeted by lot years get on cause versus average severe fraud the favorable I tell going the of rate much in on or to unfavorable ago. where cause are rate weren't just offset have that year ago, we lost is that increase be on filing. the rate yet. in is inflation And Tri-County cause

that adverse happening the high, counties. earlier the of the with but a portfolio You XX% right lot development in three comments occurring or we you my take really roughly shows is a is it as inflation in related is in connection mentioned market the of Tri-County to state-wide average I that believe going which Its it's XX%, now that Tri-County exposures. lost cause why X isn't to Tri-County

John Barnidge

and Great. the Thanks answers luck. for good

Bruce Lucas

you, John. Great. Thank

Operator

like I'd the turn over remarks. our back to Bruce This Lucas for to session. will closing any question-and-answer conference conclude

Bruce Lucas

earnings just QX to participating would like I call. in for thank our everyone

Operator

The conference Thank concluded. has presentation. today's for now you attending

now may You your disconnect lines. good a day. Have

Heritage Insurance (HRTG) 2 Aug 192019 Q2 Earnings call transcript