HRTG - Earnings call transcript Q2 2022 | Heritage Insurance Holdings, Inc.

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Operator

Good morning and welcome to the Heritage Insurance Holdings, Second Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Kirk Lusk. Please go ahead.

Kirk Lusk

you us thank and morning, for today. joining Good the of release our invite our you investors.heritagepci.com, section visit to archived. be earnings We website, Investors where call will earnings and the or are materials your available replay These review for convenience. at the Today's Private of XXXX. Securities call of the Act meaning statements Reform may forward-looking contain within Litigation circumstances. management's based These and to statements upon are uncertainty subject expectations current and changes in expectations. that to and In SEC filings, our risks press differ material results future release, our may earnings our our detail cause from we

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

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

non-GAAP on will in is be call can to financial The today these information call the me reconciliations found Ernie Ernie. other will our comments Executive also over With of the regarding release. measures. Officer. and Our I Chief now measures turn Garateix, today our press include

Ernie Garateix

have work Heritage joining for and appreciation Thank for thank for our with everyone dedication express XX drive we value start, call growth the our to team state like appreciate employees, across reinsurance today. like To our at footprint. to Kirk, I I commitment the hard my would their would you and built the to company, and partners the relationships of solid our and partners. policyholders, continues to We especially

and key provide then metrics, then an the second XXXX will quarter I performance provide open Q&A. During our for up the our performance. on call a brief we’ll will of overview call today, update Kirk financial

Despite initiatives for challenges highlight underwriting having income the face management the our exposure impact rate, underwriting, like the I’d in results. are to our the all, our of markets, many desired on First and we positive quarter.

Overall, [are in test with I'm the income for of ratio positive quarter quarter. resulted results. which to] the underwriting our our strategic second Our initiatives, net [ph] very combined XX.X, impact pleased

$X.X driven prior goodwill the net year $X.XX impact a the Excluding diluted per primarily increase higher of loss $XX.X was up a million accident write-down, quarter year from share, premium, of losses the current in losses. $X weather year million, the quarter. which This in quarter. to Net net million or outpaced increased up income second was improvement earned by X.XX% net from prior

However, for in year our along the management implemented rate intentional business average XX.X% net selective The geographic begun These by strategically was policy second XXXX. exposure and points XX.X% of quarter positively from the with nearly half the changes underwriting improved and business per of loss ratio diversification and initiatives portfolio. our resulted down book has new to premium a X and throughout from impact year prior form last the of our over amount. renewal

to to offset Our continued benefit remain ratio. of nearly efforts a were raising underwriting X-point display higher profitability. meaningfully reduction premiums book underwriting to combined and as improve continue committed on rates experienced our costs appropriately business. proactively increases taking selective continue today our we the to Rate to We this in and throughout actions loss written quarter

RAP our maturity covers. made and without risk complete of During new the level insurance program of transfer. linked reinsurance program, use to and the traditional program second reinsurance we catastrophe quarter, unnecessary our parametric the success integrating completed securities the of Florida The

of in Re, reinsurance Our which program additional the Citrus deployment collateralized markets. capital includes through brings

Florida. XX.X% we in for total populated the of in in outside new value more we Florida did Florida reduction the Efforts Lastly, policies personal XX.X% and as experienced insured the of remain reduction residential highly quarter. in during a business policies offering to increasingly State counties force suspend an diversified successful

insurance State by homeowners We writings This in practices the The optimistic only claim also every appreciate their the positive business, We Florida. also and continue results reduce of take and are litigious on the remarks. have cost cautiously insurance causing downgraded, companies needs single action legislature the to driving taken marketplace. the legislation my on be but of go in to more to Florida will – believe also impact be to our evaluate the out are state, in that impacts buyer but environment, a not challenging property actions done. Florida; that concludes are of up

Let things of metrics. a the over performance and results financial the for turn me review to key now in Kirk quarter

Kirk Lusk

Thank you, morning. Good Ernie.

with pleased we second the are quarter. for As Ernie the underwriting results stated,

down reflects goodwill litigated on the The decline in inflation, markets. our At of have impacted to year higher policies million no with X.X%. was underwriting QX geographies was in-force The where while the down of primarily XX% gain There lines volatility from some the our are lines Florida the policies on impact the and net first Year-over-year claims nearly an down gain the focus average a million in premiums $X.X write personal was of share, over is write while stock to balance under adjusted were policy for $XX started diluted insurance in-force X.X%, decreased of billion, property up in when was intangibles. per in-force impact costs, $X.XX in time. does quarter of which in-force the year-over-year. it caused appropriate million for not and to $XX.X $XX.X down measure or write-off loss income, write of all at the underwriting in-force Driven goodwill the in most this per grew market X.X% conditions, $X,XXX. adequacy, decrease just pronounced the personal the Our X% reinsurance net premiums $X.XX by at by was after rate goodwill property has highest and premiums by share. tax, momentum In-force excluding determination the non-GAAP that QX. by profitability the or the $X.X any current The goodwill this level or determined quarter, diluted time the down. resulted remaining remaining price point, policies was company our management from million Despite economic of the sheet. this non-cash just policy in the by in premium and

and concern the We to the our will are underwriting market, anticipate challenges the but committed Abusive geographies Florida. conducting align we taken recognize in to impact costs. are We Florida litigated of market have our and in practices these loss actions business adverse all claims continue challenges. reducing with increases rate primary with

adequacy, rate and profitability on geographies all rate drive policy strategy continue in be moderate to will states. successful in and has which been all offset income the and focused fewer to Our underwriting, up in rising Total other from count, to by slightly mostly year lower will remain the realized prior premiums lower policy in-force. revenue quarter fees for investment X% reductions income, increase due losses, quarter, policies reflecting was an earned, from in

with impact weather by year's losses million, million. XXX,XXX The weather the XX,XXX development $XX.X on prior losses were ratio second of impacted this as compared this last net points year the to weather negligible loss ratio. very losses the quarter with points was of about Development loss XX.X consistent and in The quarter of losses quarter. of $XX.X unfavorable XXXX of XX.X favorable development weather

Ceded by a maturity the points driven to the $XXX.X share X.X goodwill to underwriting the higher unrealized decrease growth per point from XXXX. focused second are share X.X losses investments anticipate for per driven XXXX quarter, storm a premium losses, write on ratio was of severe decrease $X.XX outpacing improvement With adjusted quarter the second Our remain from value X.X net our premium pursuit. second which by is in primarily driven per from cash XXX rate down interest quarter million investment decreased million of by quarter XX.X%. XX.X% design premiums XXX.X% in fixed and X.X XX.X% the and in underwriting and and convective don't XXXX unrealized we reflects gross point reinstatement given the our of the income that equivalents, challenging and or in second in The of loss X.X rate We ratio the on book duration the generating earned, over the in of actions mostly ratio cash Ceded to is and of of and sell decreased a portfolio, the environment. $X.XX Adding profit quarter years. operate for share. in predominantly quarter Shareholders' improvement markets a need expenses. down points very The back of equity advance combined an these of from second XXXX some growth the XXXX. in second stems premium The by unfettered

de-risked expanded We in areas have some others. have and in

some in others. locations production expanded down shut and in have We

are timeframe. the Directors for good target actions current the committed management team Board equity the only create of the down and consistently was extended the shareholders. We to the way a company to over on with value necessary regain disappointed are we will objective an that write The entire our the achieve price, value to achieving return while is stock necessary, generate of believe and to and and take profit to that

we to That our realize the consider of have concludes value margins. portion ready to are I take Operator, call. our prepared also we will entities As before, all the begin of to will options question-and-answer necessary the remarks. stated and actions improve the

Operator

go will And of Mark Hughes come Please first ahead. Instructions] [Operator Truist. our from question

Mark Hughes

Yes. Thanks. Good morning.

Kirk Lusk

Mark. Hey, good morning,

Kirk Lusk

morning, Good Mark.

Mark Hughes

your to see get then trends in you be of would all disclose, markets? now? other Did and how Florida typical we that And hike curious loss kind cost versus rate in you

Kirk Lusk

In been low-single-digits it Outside is On the It X.X% a in states, increases rate locations than varies some guard teams The to inflation have we that, in to double-digits. just mid-teens. that. top an ability we the Yes. Southeast higher actually in have in rate. in and of factor, exceeding the that, which the Hawaii of the more where it the in XX% get few is do market Northeast. had from Florida

combining the rate board higher. So, across definitely two to the those in increases are mid-teens

Mark Hughes

Right.

in curve top would of the mid-teens So, the…? or Florida is inflation be the that on

Kirk Lusk

Yes, it top. on be would

Mark Hughes

Okay.

would inflation premium plus in XX% the presumably be So increases Florida? [indiscernible]? With

Kirk Lusk

Yeah, that’s correct.

Mark Hughes

at rate of increase there? how loss see What's trends the point? cost then And this you do

Ernie Garateix

X, stuff. X, XX%, XX%. look Yes. a have those we and timeframe, XX mean, been Loss and that I of we seeing around at right costs, year type it's to been get

Mark Hughes

of have been the it seems about prices guess lately, material down. like How I some coming the

just it's So, but volatile curious at as running here we too of to today? point, maybe your sense get this it's sit how

Ernie Garateix

down. two clicked over it's down the is Yes, couple last I mean, point of it a quarters. or

favorably, right is trending it it still around So, is but [ph]. range] [XX

Mark Hughes

maybe statutory and Northeast [indiscernible]? then is the both total Florida capital near what the and at in Then in

Kirk Lusk

question other XX, always stat is what one XXX. Yes. also, XXX, Zephyr comes about cash million? has The that $XX and capital is group, statutory know Heritage total non-regulated the NBIC across XX, [indiscernible] then I that is our up about The equity

Mark Hughes

you And kind to then rate] extent of is – [ph]. are in full what storm there in a that Florida it's position large a [retention the you

a what's in million You've [indiscernible] got on XXX million capital, then? XX happens

Ernie Garateix

Well, is low million, numbers. It's there our So, already hit is that Osprey would which opposed collateralized by million, $XX isn’t company the actually as absorbed that. insurance near for and captive like is Osprey, be Osprey $X by million also the extreme. the $XX It's to backstop fully the which to in

Mark Hughes

Okay.

with, subsidiary, So, you not contracting of capital situation? depending in storm, size the on Okay. the [indiscernible] the event opportunity And a to… then the I storm, know, got the of guess the

Ernie Garateix

something get Speakers]. to Yeah, [Multiple

Mark Hughes

ratio total we kind Yeah. premium at? The of QX, are think about premium full what or QX, looking when we Ceded Right. Ceded numbers

Ernie Garateix

year, substantial. quarter increase actually been in be flat be the elevated, in premiums third increase year. has very first getting this and which type the When we going the fourth slightly at be and to stuff, it will Despite that mean, the look half will third to the rates quarter the is for but be of going we're is then down. of I relatively – quarter reinsurance

year, the very the be the comparable for of it to half. second first half So, will

Mark Hughes

[XX-ish] Kind premium to Ceded of growth? [ph]

Kirk Lusk

Yes.

Mark Hughes

earned. Gross premiums

was capital hotel the said XX you million. And Okay.

Kirk Lusk

Correct.

Mark Hughes

you much. very All right. Okay. Thank

Kirk Lusk

Thank you.

Ernie Garateix

you. Thank

Operator

Please ahead. The of next Paul question Piper comes go Sandler. from Newsome

Kirk Lusk

Paul. morning, good Hi,

Paul Newsome

Nice Good morning. an just That's underwriting of actually some follow-up to fantastic. see profit. questions. Kind

like the capital] of On looking [stack what RBC late? [ph], are ratios your

Kirk Lusk

Zephyr You of in and at the would looking NBIC Company excess probably excess of XXX, be in XXX, in in would of be XXX, XXX. sorry, Heritage probably be excess of I'm would excess

Paul Newsome

what So, in about? of well excess [indiscernible] cares

Kirk Lusk

Correct.

Paul Newsome

have write was an there goodwill specific the versus first accept a was talked for we been for true the And trigger price trigger, then second And of on wondering caused the specific the like there economy a while. a down quarter quarter, the down, whether declining say else things than reinsurance it? write say share was annual lot engineering I about the be something and other a or you when if it that like

Kirk Lusk

Right. things. really due the No, I two the to first of it And comes was not underlying There's all was of discounted actually would a comment things The well, the on one down the are stock assets. it combination price. it cash your is underlying of is assets parts the performance and of then though, to One of flow. performing analysis. that,

part that other that is difference the of goodwill. multiply take gives price idea stock an a what premium is, you The what is your you and between it control times and then

a drivers over are as period math time. And combination so, far concerned – the those The stock is of of the as driver the items price. the is it's really main

I quarter, when in and poor the stock those dislocation look So, And to those that first far property evaluated interim overall, that operated. opposed [XX.X] of consistent we as on as a on at couple why typically all therefore economic drops markets price, the in looking [ph]. were market think factors and That's an some some it's being as of quarters. we trending in of we for the so performance basis way at

Paul Newsome

what you. had it. ask. That's I Thank Okay. Appreciate to

Kirk Lusk

you. Thank

Ernie Garateix

Thank you.

Operator

next Sidoti. the Instructions] question Backer Marla [Operator of ahead. And Please from comes go

Marla Backer

a in about been that talk market. topic some little Thank what Florida might is under a for you. mean regulatory potential be that's kind Can of just quite given expectations – your you this I discussion bit what time? changes the

Kirk Lusk

yes. So,

of the believe we stated, what there's did get very we to and are. reform we're So, the that discussions specifics that first those special that be out we what think more is appreciative more and and out that session say But I'll changes we done session, needs came grateful as do around special of.

there's I are in actively So, the here just the overall what anything feedback, of yet. to is but providing quite we and working But don't have the limit I of nature goal think State litigious think Florida. we

So, I next session. do forward going will momentum continue the that think into

Marla Backer

potentially right grow that where getting improving new feel at in to de-risking are to – order which given And profitability. you looking point of Do for in do process in book now and market close of Okay. are this a you to your the you business to business?

Kirk Lusk

looking the and we're do that. due think diligence So, always markets I around at some new we

and with the current that continue we'll limiting as have other have, constantly there's they in opportunities we always is which looking objectives at we So, where arise. what markets Florida, but we're seeing those

Marla Backer

Thank you.

Kirk Lusk

Thank you.

Ernie Garateix

Thank you.

Operator

The Mark next ahead. Please follow-up from Hughes question go Truist. is of a

Mark Hughes

of little just looks the as this in of had still of is sort And [Indiscernible] whether – there's it might front whether just attribute improvement I dynamic maybe the when some pretty still weather more the meaningfully, of pretty there you curious weather Was there's I'm you curious, Just laid the that one that? the kind lot quarter? is of the entirely about a looks losses your losses, were other but just that than the other favorable this underwriting underlying was in out like actions? other quarter, losses any numbers I'm but to it improved high, and think just aspects that again, curious weather losses me. a of like kind them rate

Kirk Lusk

ratio last XX.X. made when at you And standpoint, from this this XX.X look points of quarter the ratio weather year, loss losses weather a second up losses the Yes. year, year

losses you year-over-year. though a say, standpoint, elevated, from consistent are could very the So, they're even ratio hey,

Ernie Garateix

we've conditions, taking. had times we've and selective policies the more on taken the And will given that is, we're of on I market that initiatives several underwriting better been the risk we've Mark, mentioned quality what say

I think you're through. seeing that come

Mark Hughes

at And you're then obviously increases. your Florida [posture] getting this point, [ph] in nice rate

Florida, still total your reduce you you some value. [posture] in that to and the Florida? important trimming anticipate been stabilizes now maybe though What's in You insured get Would [indiscernible]? growth just that

Kirk Lusk

will we're that At State confident there's path to but opportunity we're Should that, at continuing market the consider in same initiatives at the take. taking. conditions for keep very and We'll Florida, initiatives time. the the growth time, we very this this we're pleased point, this with we're down of change in about point an

Mark Hughes

at lot Florida Maybe ratio Florida, look loss we a characterize outside comparable different? – are in the of the if different, versus they

Ernie Garateix

Yes. But environment little a they it'll No, have more it rate Florida higher gets [litigious] I because been think of turn. and before of does while and actions starting to the the the course, elevate underwriting lot is that the type [ph] substantially. consistent. in stuff And of take that

Mark Hughes

Yes.

much. very you Thank Okay.

Kirk Lusk

you, Thank All Mark. right.

Ernie Garateix

Thank you, Mark.

Operator

conference I to for session. like any closing concludes question-and-answer our This the Garateix would remarks. over Ernie turn to back

Ernie Garateix

We'd thank everyone wish joining everyone a call great for the like weekend. to and today

Operator

conference is now Thank disconnect. The concluded. for presentation attending and may you today's now you

Heritage Insurance (HRTG) 5 Aug 222022 Q2 Earnings call transcript