Earnings call transcript Q4 2022

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Operator

Good day and welcome to the Heritage Insurance Holdings Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note today’s event is being recorded. I would now like to turn the conference over to Kirk Lusk, Chief Financial Officer for the company. Please go ahead, sir.

Kirk Lusk

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

material forward-looking call expectations. Reform release circumstances. management’s that In changes to Litigation XXXX. risks current statements Today’s and of we our contain within meaning SEC to Private from Act based of are differ statements our press in subject cause our and future the filings, These expectations earnings Securities the upon detail may and may uncertainty results our

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

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

measures. information found Our press non-GAAP include of financial comments be can reconciliations measures other will today in these The and release. also our regarding

With to the will call Executive the Chief now turn Ernie Officer. over is me Garateix, call I on Ernie. our today

Ernie Garateix

Thank on provide overview will and our you, joining initiatives all you open Q&A. XXXX. strategic quarter the then key update the an financial for will fourth performance provide of we I today. an Kirk Kirk thank for us and will for metrics call

to net income adjusted quarter. we in positive We returned are that to pleased fourth announce the

selection by positive improving states. our believe our adequacy strategic as will impact believe selective We that have include income. metrics enable and portfolio and product and capital initiatives remain of consistent policies initiatives diversification We to long-term well strategic shareholder quarterly throughout we will of allocation drive profitability are by and These encouraged underwriting the rate on underwriting, it earnings we long-term the XX Heritage value. our encouraged achieve as

the book premium actions and premiums we increase prior gross throughout policy primary of took rating quarter, XXXX. third XX.X% over expect driver average of quarter higher in the the XX.X% per continue. trend in our X.X% These an over are and this of increase this to We year written business significant rates resulting in quarter

Our continues product a markets, the focus on our tightening new produces down. but expanding new of past market markets our changes, policy over and business disruption underwriting written billion limiting our high the evaluate actions, selective coverage historic margin. to and end at of underwriting tightening be at year our are has $X.X we serves products. and The to rate also concentrated criteria premiums Even so business, the count and on or continue of considerable more in-force criteria restrictions this timely X.X% is with up while our year, sharpened

efforts reduced long-term XX.X% as to These continue We that the products have year capital our policy period. align to maximize Florida and compared for lines the led personal returns. to count a geographies with business by prior

a lines underwriting a rating while policy disciplined in This in XX.X% count XX.X%, approach underwriting Florida reduced value by increase states, disciplined while our in have force. of Our other in force. premiums total personal generating driving X.X% actions insured in in reduction X.X% premiums an resulted decrease and

requirements. returns in and in geographies or we to believe exposure products continue generate will limited reduce regulatory with that will compliance don’t We our potential long-term upside have

representing XX.X%, states insured XX% no value. our the the with line This quarter quarter this to on TIV was XX.X% further total XXXX. XX.X% and evidenced fact by state XXXX more while X grew X grew of TIV five Our our representing fourth quarter maintaining of fourth states all focus top by resulted average of balanced of X.X%, states at that TIV personal than in a top an compared by our all at smallest diversified portfolio

also is to success. selection long-term key our Product

our As business opportunity for products markets entering company that provides margin, we and are don’t believe we our believe we offer or reduced customers. in geographies sufficient

surplus addition allows on and to responsive For which to and quarter in we offerings. basis, Florida product market, the example, and lines us California market be we nimble entered believe to excess an the pricing last

We have South analyze continue offerings where offering since XXXX, policies Carolina, second markets. policies we expansion in evaluated evaluate an E&S anticipate and while to of E&S states we E&S of the other in to include quarter and

they our encouraged discipline also improving income. by metrics We underwriting impact believe June positions will positive reinsurance our believe the season. better Heritage on We and are long-term the upcoming we this have for

we pricing is capacity and Speaking how by season, of product in capital a factor reinsurance allocate reinsurance state. and

will last discussed to our are whom have reinsurance appreciate call, constraints participation cost increase We on a cost affiliate and last in expected reinsurance As reinsurance the no the continue provide long-term capacity limit at with some horizon. higher with we be program partners The the in by Florida relationship. the trading company. is our of by cost will developed which we consistent Florida legislature mitigated quarter’s partially us to to through created reinsurance year, a

ability also which million last year’s on $XXX markets program. access We limit CAT Northeast the capital a have to the provided to expect XOL Re, through Citrus

evaluate amount reinsurance capacity the to the manage regulations. we includes expect can Given may which business costs. concentration, with to new renew write we pricing the individual business existing going of up forward, This and limiting drive maintaining catastrophe state we adjust expected amount compliance our of and while will reinsurance and exposure to for continue portfolio

agents also are producing are business relationships We exiting who for us. not with good

meaningfully increases business towards for reinsurance committed to the we book sustainable remain to profitability. with offset to are cost of higher as Rate as well well loss taking continue to proactively raising improve underwriting throughout rates higher pleased and appropriately We the and continue progress premiums we as as actions costs to benefit written make profitability.

session turning of of curtail goals governor recently it abusive cautiously claim special to accomplish December the my to legislature, express the passed Kirk, practices. the am market the wanted Florida stabilize that for will during legislature. our property Florida over call to XA and Bill I and Florida state CFO the the Before the insurance encouragement Senate I optimistic the

will remain strategy our impacts of changes results. see we the the in Our until legislative unchanged

This my concludes remarks.

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

Kirk Lusk

Thank of you, of quarter represents during return everyone. Fourth $X.XX average diluted the morning, the Ernie. up Good per quarter. in $XX.X on year net million share was a $X.XX This and a loss equity XX% prior income per or share diluted annualized. or net quarter million from $XX.X

third of XXXX. the of at in-force Our policies $X.X while in-force lowest all-time at premiums are billion, high since an the level quarter

from quarter guard of last and well occurred as the XXXX, increase, X of that quarter This the X.X% the impact increased it factor. premiums increases X.X% as the out of XX% the and of in average continued it rate shows fourth alone. months fourth of inflation portfolio the Our in the in

and line. increases rate less policies expand accelerate premium We expect did X%. see than residential Commercial increased to the continue to profitable in premiums We less XX% potentially that XXXX. and opportunity increased – in-force an year-over-year, market the in-force by product throughout capture commercial/residential while

premiums business are the for and to rates forms quarter into the addition, in in the are the In as Northeast. been XOL and opportunities in which written the and Florida, ceded E&S in due CAT ceded premium to in program other XX.X% years due increase our up ability homeowners and been E&S XXXX the quota premiums is the last criteria up expand California to writing Net state adjust in policies see by E&S increase of underwriting net burn program fourth to expect now market premiums and X.X% compared a has well product are premium offering share to Gross as We’ve needed. we year’s primarily states. as are to a ceded specific change year-over-year. profitable several The driven our on in XXXX earned the higher gross X% premium. only up increase we

Total most in-force. lower X.X% the was in claims development Irma reestimated in includes adverse of which claims. for from mentioned other income which included and quarter by revenue the earned with million year was of Nicole prior in fees X.X% an higher million. driven million, open policy $XX.X premiums fourth losses $X.X LAE for increase our policies litigated the increase Hurricane Hurricane Net losses quarter, revenue, million loss Losses the quarter net The to the and over is the an Irma. reflecting of net losses prior lower the quarter related We just return, for partially year. and increase in the recognizing for late-reported prior are of due increased Hurricane investment associated offset $XX.X by adverse the development to ultimate $XXX.X quarter, lower from

layers ratio of XX private has a increase losses The the participation caused of that Heritage that result in reestimation, of limit points. exhausted FHCF XX% the the remaining. in As has net loss increase reinsurance an basis in

losses when value the year $X.XX, adding Expenses in higher along loss in described. to are per need X.X $XXX the relates written X.X IT. don’t the the in cost by increase up quarter ratio ratio from increase Book million benefits a to quarter, net policy investments expense investment unrealized due maturity. increased $X.XX. over XX.X%, prior points, policy acquisition the and of driven costs. value anticipate net adjusted costs ratio impact net sell costs up book points has in to cash these in million with to The was the is XX.X% expense higher and The of a the XXXX advance the ratio of of just $XX.X in portfolio, and premiums gross back in X.X but share equivalents, With is points we cash by which acquisition investments combined related for

a A+. years, invested on rating is portfolio fixed duration the and Our income our is X.X average short credit

such, off to mature. unrealized As expect the as we losses investments roll

costs, changes our favorable don’t we be continue rise. of improvements and in to exposures continues focus manage TIV which on profitability, in loss to we in strategy our to CAT Florida, see and policy we reinsurance and to recent expect reductions results metrics. expected to Our meaningful drive until Despite count to legislative shift reducing XOL the are expect our

for We loss all exceed steps and material our inflation address labor. to loss as inflation reflect increase pricing rates to reinsurance cost, include soon costs. increases expect the rising possible in as will and to guard cost we due to to states adjust necessary rate and in We any take

exposures unprofitable especially renewal in restrict markets, expected also to We continue the underwriting XOL of across business, our the reinsurance CAT the portfolio in and capacity to spring. to avoid our given keep relatively flat dislocated tight

providing product operational and portfolio for and Our efficiency efficiency XOL integrity, adequacy the focus effectiveness. is reinsurance a the of CAT balanced program, and and rate on right underwriting market

provide to shareholders. We these initiatives returns our policies will provide for to with and our the focus service expect consistent holders on they

We each will firmly reflects value our continue dissatisfied are of the do insurance of of and to capitalization market given that the company. true operating reduce We not are analyze share price believe our the returns more each the current capitalization of statutory of to the We more worth than portfolio and the surplus optimize our evaluate total volatility. particularly it remain and company, the with market that believe the companies total of companies than company. worth

and Board the necessary sustainable returns. focused shareholder are and steps profitability will providing and that take long-term value. committed drive We to Management value remain the to on shareholder

will consider margins. have also to of to and the before, the realize necessary actions options we will value I stated take entities improve our As all

question-and-answer are we portion Operator, remarks. to ready prepared the of the our call. begin concludes That

Operator

Thank you. [Operator question Please first Piper from ahead. Sandler. go Paul with comes Newsome Today’s Instructions]

Paul Newsome

on the wonderful. That’s quarter. Congratulations the morning. profit in Good

Ernie Garateix

you, Thank Paul.

Paul Newsome

I if reinsurance potentially just everything, would right? it’s Can is And It’s the for exactly in also but get there pieces, prices? you think is what face of to walk renewed? actually year? Maybe walk there. over the share course you a not us what’s to of part us going in going higher that of renewed kind be quota through can through what

Kirk Lusk

Yes. two XX quota Well, share, largest the XX. a ones which is net are the

a is bulk of the the And real that’s is the large other already one CAT renewed XOL, been the XX. for which year. So

Ernie Garateix

XOL, which is bond is the in already there as place It’s year. of part a multiyear. And Northeast, previous a for from the CAT CAT

Paul Newsome

it Is the it? entire that Right. contributed just XOL or part of

Kirk Lusk

that’s XOL, CAT entire the XX. It’s on

Paul Newsome

it. it. the Got In end... Got

Kirk Lusk

the bond portion, CAT Excluding yes.

Paul Newsome

that one. economics our share CAT for in model changes of have the into should any net we Excluding the respectively? The we see, put that quota

Kirk Lusk

cost net Yes. we slightly a although did percentage was that the drop share, Yes, quota the from up. standpoint,

So to from standpoint, a frame it’s be ceded slight increase. a probably going

Paul Newsome

more particularly view broadly, claims then given maybe inflation, just as you’re And you in Right. on maybe versus rate the isn’t – could address getting just... with of but your the Florida, even margin what book

Kirk Lusk

digits. at – single mean we the we’re almost we that looking digits, Yes. across drop double-digit the of it the are rate have Well, I on guard what seen, that, and X.X% and recently. And low I of year. bulk still of top claims double inflation an inflation Southeast as in we’ve Northeast factor the in is, rate high increases say, then actually would have in California the this XX% increases footprint, our our And Hawaii.

between you close So that because of to at to you can the as difference and seen claims claims current is probably it double look the the rate inflation inflation in there, again, the past, some we’ve be when difference of expect that the going digits.

Paul Newsome

at year-end? Any ratios one update then on capital RBC in subsidiaries the levels else And somebody unless various and Right. more ask. question

Kirk Lusk

up year. down Zephyr actually XXX%. was XX. and up. RBC, XXX X our subsidiaries, increased It Last year, last going still from also. Yes. year, but then Each slightly, particularly well it’s last is over at is Heritage, was NBIC Heritage And of it’s the

We to into the number far each expect range statutory a as the standpoint. year. from this so good this be in capital that our and pretty Again, where RBCs, actually feel as X we improvement XX of in

Paul Newsome

Fantastic. folks let I ask some will other questions.

Kirk Lusk

Appreciate Paul. it. Thanks,

Operator

next Our Truist. question Hughes from [Operator Please Instructions] ahead. today Mark comes of go

Ernie Garateix

morning Mark. good Hey,

Mark Hughes

Was run this weather Good seasonality, kind quarter, you. quarter? this this this of unusual? and was was weather something is quarter? thinking certainly sort normal morning. of unusually weather but Thank or good Yes. Just or of the this rate, How an was

Ernie Garateix

quarter first quarter? the fourth right? the or Fourth, to referring you Are

Mark Hughes

Fourth quarter, first can talk quarter, but too… you about

Ernie Garateix

If you want to, us yes.

Kirk Lusk

was cats, then it from a at and to fourth look what very almost The when – last non-cat the weather, was quarter would about Yes. non-hurricane you expect year. you comparable the cats hurricane the

it would kind was I a about of flat So, say, year.

Mark Hughes

Yes.

say to anything want first then quarter? you And the Okay. about

Ernie Garateix

year, kind No. far, what the mirroring so seen gave of is in quarter past, At so... this the first we and

Mark Hughes

Okay.

to seasonality quarter fourth adjusted? or similar So, the normal,

Ernie Garateix

Yes.

Mark Hughes

pace it expect and perhaps, you drive with with kind you are do accelerate this will pricing, mentioned acceleration, rate happens is to what taking, the increase you renewals I of you thinking accelerate, about and the that would have You actions that? rate the to need If am or keep then continue how see reinsurance are thinking going? to of that

Ernie Garateix

So, there is definitely reinsurance, the a component right. with

we evaluate cat Paul, we XOL would pricing has adjusted that with have would accordingly to XX. rates over be mentioned placed Once then obviously, piece. would what we that and As of that be, kind

that portfolio, because So, in some see areas might increase of our the reinsurance of you rates further from go in perspective. up

Kirk Lusk

good expect to year, up. I Yes. And I it’s think rather went a mean substantially. we Last up question. continue to do they go reinsurance rates

increases going that, upon be increases to see and rate And probably need so to contributing state is And actually some based mean is to that legislative overall market which that reinsurance that the that are that’s think I unfortunately, we actions, but rates what at despite think Even this do recent I is the don’t each yes, point. pleased substantial I I across think of are actually the the some going those footprint. will about, we very that, to taking. we to of continue, looking because, going positive ease rates our at reinsurance we to see

Mark Hughes

the so we base the that what of spend of of dollar get was is last increases? cat year just a sense potential amount sort think can roughly, we about What XOL when

Kirk Lusk

I Yes, – confirm – $XXX will was and was around spend net million. That Yes. up, one number about that it second.

Mark Hughes

did started then is And you And business for that E&S Florida, that adequately E&S offering you priced? the – that you? then bringing you driving you is was say feel are in When Okay. what policies?

Ernie Garateix

priced. adequately is definitely it So,

Florida a bit in for been over business year. little E&S a have the We

suspend of As basically the we saw we in some paused conditions market, be the or to admitted.

it So, we in to is do the as accordingly. conditions We focusing but have on priced. agents with flexibility changes will the select those E&S make continue there pricing adequately the area, market change

Mark Hughes

you there? confidence business, commercial is open the reasonable you then growth? getting market for are additional that gives And what How that pricing

Ernie Garateix

flexibility each pricing and accordingly we the residential couple to market factor that again, with things have can individually, sure there the we that we on priced an the some to of side the a are So, do make modeled even piece. risk adjust on commercial, conditions for adequately is IRPN

Mark Hughes

you about like assume going looking that I be to some your what if reinsurance making are are Yes. are assumption growing still piece. costs you commercial

Ernie Garateix

Correct.

Now that assumption, yes. the correct is

Kirk Lusk

to Premiums commercial substantially. Yes. reinsurance when premiums this our manage up the Well, was about down, that think did I but process. exposures mean, year. that as we and grow for – growth year up portfolio, look Actually, last also I I slow were to policy our – think the be substantially. would you were expect it flat count

So, had year in going we growth I itself is think probably that repeat last the XXXX. to not

Mark Hughes

Okay. Great.

Kirk Lusk

Yes.

– thing on course, the commercial habitational. other is is do the the we other thing garden The on of just write style,

So, to from are not an more underwriting deviate from standpoint, that getting to also. premium going actually we

Mark Hughes

more, leaning How ask market you into one me are the this E&S. that California point? much Let at

Ernie Garateix

leaning are long-term small a is heavily. a underwriting do disciplined think not a It’s We guess E&S an basis. play. that’s on Again, It approach, and portfolio. we I

that is have plays we are there, out. we see our kind that and of writing So, profitable water business we long-term the there. where in will It do out toe a

Mark Hughes

Florida loss number? ratio. that think estimate could Maybe on you What mean? on the points what the heard of you think do XX I in reform have the

Ernie Garateix

I don’t this a we point. have think number at

early. it’s think I

kind we for that promising by that the the to the to December think But end exactly I property I optimistic I everything that where at the of data, market are of in and trends Am time more absolutely. in absolutely market. kind see Florida all we cautiously bit going Florida, legislature But metrics until stabilize eventually looking mean. the little up. sign and passed is is think it would a refrain a will what was have from we this

Mark Hughes

Yes.

Okay. very much. Thank you

Ernie Garateix

Thank you, Mark.

Operator

from with today Ladies Piper Sandler. and Please go next follow-up question a Newsome gentlemen, Paul our is ahead.

Paul Newsome

you Thank again.

New And your been pushback seeing California sounds So, regulatory it some of like it? being are accommodated, in with with what in I has like What’s very but news. think Florida some of far? perspective these your obviously, news – increases. you has York And your so has been experience is feels It any rate the on it sounds resisting rates? the is much even

Ernie Garateix

have we proactive on. So, what we always provide environments. of is our I are information each to them what’s And that would regulatory say of with good very relationship going

So, a case are and placing are until as out point, not waiting in reinsurance has reinsurance, to go we our have the the we place discussions.

them giving are with to some insight working and them on as piece. on that what’s going We

again, is So, rate everything a right. perspective actuarially, from up backed

then We saying, are metrics and coming This together actuaries on at the what that and the is loss based that think. in we case put are numbers from reinsurance not make looking that piece. pricing on costs, is this

understand and are So, with continue necessary. these happening I in rates why conversations them in is will front those the think we proactively what marketplace so they

Kirk Lusk

does by general, And are of them seeing the the reinsurance would the rate they I state, the it understand Yes. situation. say, in say, of reality but would And vary increases. bulk I

And so we understanding approaching it. how are therefore are

Paul Newsome

strong question. I is results. also appreciate This last And the

Ernie Garateix

Thank you, Paul.

Kirk Lusk

Thanks Paul.

Operator

the question-and-answer to our management the gentlemen, Ladies team I for over to turn any concludes remarks. conference would final back and this like session.

Ernie Garateix

everyone the Heritage. and Thank interest joining appreciate like today call for you. in to thank would the We

balance XXXX have these continue you, execute initiatives, weekend. we of by achieve drive earnings against encouraged and are strategic to consistent shareholder forward a as profitability quarterly and quarter results to great our look fourth the Thank to value. We long-term and

Operator

This thank presentation. call. Thank concludes conference all today’s We today’s attending you you. for

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

Heritage Insurance (HRTG) 3 Mar 232022 Q4 Earnings call transcript