UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 Form 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-36462 Heritage Insurance Holdings, Inc. (Exact name of Registrant as specified in its charter) (State of Incorporation) (IRS Employer | Title of each class | Trading Symbol(s ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Year Ended December 31, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From to Commission File Number 001-36462 Heritage Insurance Holdings, Inc. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-acceler ...

Heritage Insurance Holdings, Inc. (NYSE:HRTG) Q4 2019 Earnings Conference Call February 28, 2020 8:30 AM ET Company Participants Arash Solemani – Executive Vice President Bruce Lucas – Chairman and Chief Executive Officer Kirk Lusk – Chief Financial Officer Conference Call Participants Mark Hughes – SunTrust Paul Newsome – Piper Sandler Arash Solemani Good morning, and thanks for joining us today. We invite you to visit the investors section of our website, investors.heritagepci.com, where the earnings rele ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 Form 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-36462 Heritage Insurance Holdings, Inc. (Exact name of Registrant as specified in its charter) (State of Incorporation) (IRS Employer Delaware 45-5338504 Identification N ...

Heritage Insurance Holdings, Inc. (NYSE:HRTG) Q3 2019 Earnings Conference Call November 1, 2019 9:00 AM ET Company Participants Arash Soleimani - Executive Vice President Bruce Lucas - Chairman and Chief Executive Officer Kirk Lusk - Chief Financial Officer Conference Call Participants John Barnidge - Sandler O'Neill Frederique Sleiffer - KBR Matthew Carletti - JMP Securities Operator Good morning and welcome to the Heritage Insurance Holdings Third Quarter 2019 Financial Results Conference Call. My name is ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 Form 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-36462 Heritage Insurance Holdings, Inc. (Exact name of Registrant as specified in its charter) Delaware 45-5338504 (State of Incorporation) (IRS Employer Identification No.) 2 ...

Heritage Insurance Holdings, Inc. (NYSE:HRTG) Q2 2019 Earnings Conference Call August 2, 2019 8:30 AM ET Company Participants Arash Soleimani - EVP Bruce Lucas - Chairman & CEO Kirk Lusk - CFO Conference Call Participants Mark Hughes - SunTrust Christopher Campbell - KBW Matthew Carletti - JMP Securities John Barnidge - Sandler O'Neill 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. ...

Financial Data and Key Metrics Changes - Gross written premium increased by 2.9% year-over-year despite derisking $3.4 billion of total insured value from Florida's Tri-County region [7][8] - Net income for the quarter was $7 million, equating to $0.24 per diluted share [17] - Total revenue increased by $6.2 million or 5.6%, reflecting the increase in net premiums earned and unrealized gains on equity securities [22] - Book value increased by $9.8 million to $435.1 million from $425.3 million at year-end 2018, with book value per share at $14.78, a 2.4% increase [26] Business Line Data and Key Metrics Changes - Premiums-in-force in Florida decreased by $12.4 million or 2.4% year-over-year, while premiums-in-force outside Florida grew by $19.2 million or 4.7% [19][20] - The percentage of Heritage's non-hurricane open claims in Florida's Tri-County is the lowest in the company's history, down 15 points year-over-year [11] - The percentage of active non-hurricane losses in Florida's Tri-County is at a new record low, down 14 points year-over-year [11] Market Data and Key Metrics Changes - The company projects only 29% of its total insured value to be within Florida by the end of 2019, indicating a shift away from Florida [9] - The company has expanded its geographic footprint, writing its first policy in Virginia and launching a commercial residential program in New Jersey [10] Company Strategy and Development Direction - The company is focusing on multistate diversification, with premiums growing by 6.6% outside of Florida [8] - The management believes that companies diversifying away from the Tri-County region in Florida will outperform peers over the long run [12] - The company is committed to retiring common stock as long as its share price is below fair value, with a remaining share repurchase authorization of $45 million [15] Management's Comments on Operating Environment and Future Outlook - Management expects the first quarter to be the weakest net income quarter in non-hurricane years due to net exposure to winter weather, with progressively stronger income expected throughout the year [18] - The company anticipates continued improvement in loss trends due to the passage of Assignment of Benefit reform in Florida [13] - Management expressed confidence in the claims examination process and believes the new AOB legislation will reduce litigation and fraud abuses in the Florida market [45][58] Other Important Information - The first quarter loss ratios were impacted by a large hailstorm in Brevard County, with a net retention of $10.2 million booked [14] - Operating expenses increased year-over-year due to the favorable impact of NBIC-related purchase accounting in the first quarter of 2018 [24] Q&A Session Summary Question: Update on Irma and Michael gross loss estimates and open claims - Irma has approximately $900 million in open claims with about 2,000 total claims, while Michael is projected at roughly $40 million with a couple hundred open claims [32] Question: Ceded premiums in the quarter - Ceded premiums were higher due to an increase in the net quota share from 49.5% to 52% [35] Question: G&A expenses comparison - G&A expenses were lower due to expense accruals and slightly reduced staffing year-over-year [38] Question: AOB legislation impact - The AOB statute is expected to reduce fraud abuses in the Florida market, particularly on hurricane losses [45][58] Question: Combined ratio expectations - The company is not providing specific guidance but indicated that previous guidance did not include a cat load [51] Question: Weather volatility post-NBIC acquisition - The company does not expect greater weather volatility than anticipated and is satisfied with NBIC's performance [60][62] Question: Strategic partnership with Safeco - The partnership has been launched in the Northeast with plans to expand to other states [76]

PART I – FINANCIAL INFORMATION [Financial Statements](index=5&type=section&id=Item%201%20Financial%20Statements) Heritage Insurance Holdings reported Q1 2019 net income of $7.0 million, a decrease from $14.8 million, with total assets at $1.68 billion and operating cash flow significantly improving Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total investments | $567,008 | $528,593 | | Cash and cash equivalents | $279,720 | $250,117 | | Total Assets | $1,676,993 | $1,768,713 | | Total Liabilities | $1,241,906 | $1,343,380 | | Total Stockholders' Equity | $435,087 | $425,333 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Account | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Gross premiums written | $210,348 | $204,366 | | Net premiums earned | $109,691 | $106,108 | | Total revenues | $118,261 | $112,026 | | Net income | $6,964 | $14,829 | | Diluted earnings per share | $0.24 | $0.55 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $85,322 | $(12,132) | | Net cash (used in) provided by investing activities | $(34,171) | $55,747 | | Net cash used in financing activities | $(21,544) | $(3,668) | | Increase in cash, cash equivalents, and restricted cash | $29,607 | $39,947 | - The company adopted the new lease accounting standard, ASU 2016-02 (Topic 842), prospectively in Q1 2019, resulting in approximately **$2.8 million** in right-of-use assets and lease liabilities with no material income statement or cash flow impact[30](index=30&type=chunk)[31](index=31&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management reported Q1 2019 net income of $7.0 million, a decrease driven by a higher net combined ratio of 97.3%, despite 2.9% gross premium growth and a reduced debt-to-capital ratio - **Net income** for Q1 2019 was **$7.0 million**, or **$0.24 per diluted share**[114](index=114&type=chunk) - **Gross premiums written** increased **2.9%** to **$210.3 million**[114](index=114&type=chunk) - Favorable prior year reserve development of **$0.6 million**[114](index=114&type=chunk) - **$6.8 million** was returned to shareholders via dividends and buybacks[114](index=114&type=chunk) - **Debt-to-capital ratio** reduced to **24.1%**, down **10.7 points** year-over-year[114](index=114&type=chunk) Key Financial Ratios Comparison | Ratio | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net loss and LAE ratio | 56.6% | 50.0% | | Net operating expense ratio | 40.7% | 32.2% | | Net combined ratio | 97.3% | 82.2% | - The increase in the net loss ratio to **56.6%** was due to higher current accident quarter net losses, partly offset by favorable reserve development, while the net operating expense ratio increased to **40.7%** primarily due to the favorable impact of NBIC-related purchase accounting in the prior-year quarter and reduced ceding commission income[129](index=129&type=chunk)[130](index=130&type=chunk) - Net cash from operating activities was **$85.3 million**, a significant improvement from a **$12.1 million** use of cash in Q1 2018, primarily due to the collection of reinsurance on catastrophe claims and a reduction in unpaid losses[138](index=138&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's investment portfolio is exposed to interest rate, credit, and equity price risks, with a 100 basis point rate increase potentially decreasing fixed maturity fair value by 3% or **$18.4 million** Interest Rate Sensitivity of Fixed Maturity Securities (as of March 31, 2019) | Hypothetical Change in Interest rates | Change In Estimated Fair Value (in thousands) | Percentage Change in Estimated Fair Value | | :--- | :--- | :--- | | 100 basis point increase | $(18,368) | (3)% | | 100 basis point decrease | $18,363 | 3% | - Credit risk is mitigated by investing in fixed maturities that are generally investment grade and by diversifying the portfolio, with **92%** of the fixed maturity portfolio rated BBB- or higher as of March 31, 2019[173](index=173&type=chunk)[175](index=175&type=chunk) - Equity price risk is managed through industry and issuer diversification and asset allocation, with the equity portfolio valued at **$17.4 million** primarily invested in the financial, energy, and other sectors[176](index=176&type=chunk) [Controls and Procedures](index=35&type=section&id=Item%204%20Controls%20and%20Procedures) The company's CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2019, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2019[180](index=180&type=chunk) - There were no changes in internal controls over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting, though controls were implemented to facilitate the adoption of the new lease accounting standard[181](index=181&type=chunk) PART II – OTHER INFORMATION [Legal Proceedings](index=36&type=section&id=Item%201%20Legal%20Proceedings) The company is involved in ordinary course legal actions, which management does not expect to have a material adverse effect on its financial position or results - The Company is party to claims and legal actions arising in the ordinary course of business but does not expect them to have a material adverse effect on its financial condition or results[182](index=182&type=chunk) [Risk Factors](index=36&type=section&id=Item%201A%20Risk%20Factors) No material changes have occurred with respect to the risk factors previously disclosed in the company's 2018 Annual Report on Form 10-K - No material changes have occurred with respect to the risk factors disclosed in the 2018 Form 10-K[183](index=183&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In Q1 2019, the company repurchased 347,740 shares for $5.0 million under its share repurchase program, with approximately $45.0 million remaining available through December 31, 2020 Issuer Purchases of Equity Securities (Q1 2019) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Dollar Value of Shares that May Yet be Purchased (end of period) | | :--- | :--- | :--- | :--- | | Jan 2019 | — | $ — | $50,000,000 | | Feb 2019 | — | $ — | $50,000,000 | | Mar 2019 | 347,740 | $14.56 | $44,989,000 | - The Board of Directors authorized a stock repurchase program on August 1, 2018, allowing the company to repurchase up to **$50 million** of its common stock through December 31, 2020[185](index=185&type=chunk) [Exhibits](index=36&type=section&id=Item%206%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files

Part I [Business](index=5&type=section&id=Item%201.%20Business) The company is a vertically integrated property and casualty insurer specializing in residential property insurance across **11 coastal states** - The company is a property and casualty insurance holding company providing personal and commercial residential property insurance in **11 coastal states**, including Florida, Hawaii, and several northeastern states, through its subsidiaries: Heritage P&C, NBIC, and Zephyr[15](index=15&type=chunk)[20](index=20&type=chunk) Financial Strength Ratings of Key Subsidiaries | Subsidiary | Demotech Rating | KBRA Rating | KBRA Investment Rating | | :--- | :--- | :--- | :--- | | Heritage P&C | A | BBB+ | N/A | | Zephyr | A' | BBB+ | N/A | | NBIC | A | A- | N/A | | Heritage Insurance | N/A | N/A | BBB | Key Financial and Operational Metrics (as of and for the year ended Dec 31, 2018) | Metric | Value | | :--- | :--- | | Policies in Force | 515,686 | | Annualized Premium | $923.7 million | | Gross Premiums Written | $923.3 million | | Operating Income | $69.5 million | | Total Assets | $1.8 billion | | Total Stockholders' Equity | $425.3 million | - The company's core strategy is to grow and geographically diversify its property insurance operations to mitigate risk from catastrophic weather events, enhance relationships with reinsurers, and optimize reinsurance pricing[22](index=22&type=chunk) - A key competitive advantage is the vertical integration of its claims model, using subsidiaries CAN and BRC for claims adjustment, water mitigation, and repair services, which was expanded to North Carolina, Hawaii, and New York in 2018[30](index=30&type=chunk)[41](index=41&type=chunk) - The company utilizes a substantial reinsurance program to limit exposure to catastrophic events, purchasing coverage from the FHCF, over **50 private reinsurers**, and through catastrophe bonds sponsored by its subsidiary, Citrus Re Ltd[39](index=39&type=chunk)[79](index=79&type=chunk) [Risk Factors](index=19&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks primarily related to its business operations, the regulatory environment, and common stock ownership - A primary risk is that loss reserves are estimates and may be **inadequate** to cover actual liabilities for losses, which could adversely affect results of operations[94](index=94&type=chunk) - The business is **highly concentrated in coastal states**, making it disproportionately vulnerable to single or multiple catastrophic events like hurricanes and winter storms[97](index=97&type=chunk)[98](index=98&type=chunk) - The company is **heavily reliant on reinsurance** to manage catastrophic risk, with availability and cost subject to market conditions and a **risk of non-payment** by reinsurers, including the state-run Florida Hurricane Catastrophe Fund (FHCF)[101](index=101&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk) - Operational risks include **potential failures of IT systems, data breaches, cyber-attacks**, and the **inability to attract and retain qualified employees** and key executives[127](index=127&type=chunk)[129](index=129&type=chunk)[136](index=136&type=chunk)[138](index=138&type=chunk) - Insurance operations are subject to **extensive state regulation** covering premium rates, solvency, capital requirements, and affiliate transactions, which may **reduce profitability or limit growth**[152](index=152&type=chunk)[162](index=162&type=chunk) - Risks for common stock owners include **significant price volatility**, **no guarantee of future dividends**, and **anti-takeover provisions** in corporate bylaws and state insurance laws that could deter a change of control[173](index=173&type=chunk)[174](index=174&type=chunk)[177](index=177&type=chunk)[181](index=181&type=chunk) [Unresolved Staff Comments](index=35&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - None[184](index=184&type=chunk) [Properties](index=35&type=section&id=Item%202.%20Properties) The company owns its corporate headquarters, a restoration center, and two operational facilities, while leasing office space in Honolulu, Hawaii Summary of Company Offices and Locations | Location | Business Use | Square Footage | Ownership | | :--- | :--- | :--- | :--- | | Clearwater, Florida | Corporate Headquarters | 75,736 | Company owned | | Safety Harbor, Florida | Restoration Center | 16,367 | Company owned | | Honolulu, Hawaii | Insurance Company HI Operations | 4,405 | Leased | | Pawtucket, Rhode Island | Insurance Company NE Operations | 15,321 | Company owned (Held for sale) | | Pawtucket, Rhode Island | Insurance Company NE Operations | 22,520 | Company owned | [Legal Proceedings](index=35&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine legal proceedings not expected to materially affect its financial condition or results of operations - The company is subject to routine legal proceedings in the ordinary course of business, which are **not expected to have a material adverse effect**[186](index=186&type=chunk) [Mine Safety Disclosures](index=35&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[187](index=187&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=36&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock is listed on the NYSE, with quarterly cash dividends paid since Q4 2015, and a stock repurchase program authorized - The company's common stock is listed on the **NYSE** under the symbol **"HRTG"**, with **30,360,758 shares outstanding** held by approximately **32 stockholders of record** as of March 8, 2019[189](index=189&type=chunk)[190](index=190&type=chunk) - The company has paid a **quarterly cash dividend since Q4 2015**, but future dividends are **not guaranteed** and depend on various factors[174](index=174&type=chunk)[191](index=191&type=chunk) - A stock repurchase program authorizing up to **$50 million in repurchases** was authorized on August 1, 2018, effective through December 31, 2020[175](index=175&type=chunk) [Selected Financial Data](index=38&type=section&id=Item%206.%20Selected%20Financial%20Data) The company's five-year financial data shows significant growth in gross premiums written and total assets, with volatile but recovering net income and an improving combined ratio Selected Statements of Operations Data (2014-2018) | (In thousands, except per share data) | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | Gross premiums written | $923,349 | $625,565 | $626,704 | $586,098 | $436,407 | | Total revenue | $480,171 | $406,623 | $438,958 | $394,792 | $233,820 | | Net income (loss) | $27,155 | $(1,119) | $33,865 | $92,512 | $47,097 | | Diluted earnings (loss) per share | $1.04 | $(0.04) | $1.14 | $3.05 | $1.82 | | Net loss ratio | 52.3% | 53.1% | 58.0% | 37.5% | 40.1% | | Combined ratio (net) | 90.4% | 94.1% | 92.8% | 65.0% | 71.4% | Selected Balance Sheet Data (2014-2018) | (In thousands) | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Assets | $1,768,713 | $1,771,210 | $1,033,244 | $837,398 | $615,031 | | Long-term debt, net | $148,794 | $184,405 | $72,905 | $— | $— | | Total Liabilities | $1,343,380 | $1,391,394 | $675,285 | $480,845 | $359,942 | | Total Stockholders' Equity | $425,333 | $379,816 | $357,959 | $356,553 | $255,089 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=40&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion highlights the impact of the NBIC acquisition, return to profitability, challenges from hurricanes, and debt refinancing, with loss reserves remaining a critical accounting estimate [Overview, Acquisitions, and Recent Developments](index=40&type=section&id=Overview%2C%20Acquisitions%2C%20and%20Recent%20Developments) This section covers the company's strategic acquisitions, including NBIC, the impact of 2018 hurricanes, and significant debt refinancing activities to enhance capital structure - The acquisition of NBIC Holdings, Inc. on November 30, 2017, for approximately **$250 million** (**$210M cash** and **$40M stock**), was a key strategic move for geographic diversification[207](index=207&type=chunk) - In 2018, the company incurred estimated consolidated retention losses of **$16.5 million** from Hurricane Florence and **$16.0 million** from Hurricane Michael[213](index=213&type=chunk)[214](index=214&type=chunk) - In December 2018, the company enhanced its capital structure by entering a new five-year, **$125.0 million** secured credit facility, using proceeds to redeem **$79.5 million** in senior notes and repurchase **$72.7 million** in convertible senior notes[215](index=215&type=chunk) [Results of Operations](index=44&type=section&id=Results%20of%20Operations) For 2018, the company saw a **48%** increase in gross premiums written and a return to profitability, driven by NBIC's full-year operations and an improved combined ratio Consolidated Results of Operations (2018 vs. 2017) | (in thousands) | 2018 | 2017 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Gross premiums written | $923,349 | $625,565 | $297,784 | 48% | | Net premiums earned | $454,182 | $379,564 | $74,618 | 20% | | Losses and LAE | $237,425 | $201,482 | $35,943 | 18% | | Operating income | $69,536 | $49,535 | $20,001 | 40% | | Net income (loss) | $27,155 | $(1,119) | $28,274 | N/A | - The increase in 2018 gross premiums written and earned was primarily due to the inclusion of a **full year of operations from NBIC**, which was acquired on November 30, 2017[233](index=233&type=chunk)[234](index=234&type=chunk) - Ceded premiums increased **79%** in 2018 due to a full year of NBIC's reinsurance program, which includes extensive quota share reinsurance designed to mitigate non-catastrophe losses[235](index=235&type=chunk) - The company's retained hurricane losses for 2018 were **$32.9 million** for Hurricanes Lane, Florence, and Michael, with an additional **$1.7 million** recorded for 2017's Hurricane Irma[242](index=242&type=chunk) - Losses incurred in 2018 included **$13.3 million** of **adverse prior year development**, primarily due to Florida litigated claims and Assignment of Benefits (AOB) abuse[243](index=243&type=chunk) Key Ratios (2018 vs. 2017) | Ratio | 2018 | 2017 | | :--- | :--- | :--- | | Ceded premium ratio | 51.0% | 41.0% | | Net loss ratio | 52.3% | 53.1% | | Net operating expense ratio | 38.1% | 41.0% | | Net combined ratio | 90.4% | 94.1% | [Liquidity and Capital Resources](index=51&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is strong, with significant cash from operations and investments, further enhanced by a new **$125 million** credit facility in late 2018 to refinance existing debt - As of December 31, 2018, the company held **$250.1 million** in cash and cash equivalents and **$526.1 million** in investments[288](index=288&type=chunk) Summary of Cash Flows (in thousands) | Activity | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Net cash from Operating activities | $95,428 | $7,489 | $82,955 | | Net cash from (used in) Investing activities | $24,365 | $(7,242) | $(249,416) | | Net cash (used in) from Financing activities | $(31,953) | $47,556 | $43,826 | - In December 2018, the company entered into a new five-year, **$125 million** credit agreement, consisting of a **$75 million** term loan and a **$50 million** revolving credit facility, with proceeds used to refinance existing debt[297](index=297&type=chunk)[299](index=299&type=chunk) - During 2018, the company repurchased or exchanged a total of **$83.3 million** principal amount of its Convertible Notes, leaving **$23.4 million** outstanding as of Q1 2019[318](index=318&type=chunk) - In November 2018, a subsidiary obtained a **$19.2 million** loan from the Federal Home Loan Bank (FHLB), collateralized by **$31.0 million** in U.S. government securities[326](index=326&type=chunk) Contractual Obligations as of December 31, 2018 (in thousands) | Obligation | Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Note payable | $117,588 | $12,929 | $24,552 | $80,107 | $— | | Convertible debt | $49,663 | $1,652 | $3,427 | $3,427 | $41,157 | | Mortgage loan | $21,280 | $893 | $1,786 | $1,786 | $16,815 | | FHLB agreement | $22,215 | $604 | $1,206 | $20,405 | $— | | Lease agreements | $11,215 | $922 | $2,743 | $2,687 | $4,863 | | Total | $221,881 | $17,900 | $33,714 | $108,412 | $62,835 | [Critical Accounting Policies and Estimates](index=56&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company's critical accounting estimates include loss reserves, reinsurance, policy acquisition costs, investment valuation, stock-based compensation, and income taxes, with new accounting standards adopted in 2018 - Reserves for unpaid losses and loss adjustment expenses represent the **most significant accounting estimate**, requiring management to project the ultimate cost of settling all reported and incurred but not yet reported (IBNR) claims[333](index=333&type=chunk) - As of December 31, 2018, gross reserves totaled **$432.4 million**, comprising **$135.1 million** in case reserves and **$297.2 million** in IBNR reserves[337](index=337&type=chunk) - Policy acquisition costs are **capitalized** to the extent recoverable and **amortized** over the policy period, with a **premium deficiency test** performed each reporting period to ensure recoverability[339](index=339&type=chunk)[340](index=340&type=chunk) - Investments in fixed maturity and equity securities are classified as **available-for-sale** and reported at **fair value**, with unrealized gains and losses on fixed maturities recorded in other comprehensive income and changes in equity securities recorded in net income[345](index=345&type=chunk) - The Tax Cuts and Jobs Act, enacted December 22, 2017, reduced the corporate federal income tax rate from **35%** to **21%**, resulting in a tax benefit of approximately **$21.3 million** at December 31, 2017[365](index=365&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=61&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are interest rate, credit, and equity price risks, managed through investment strategies focused on capital preservation and diversification - The company's main market risks are **interest rate risk, credit risk, and equity price risk**, managed by a committee-led investment strategy focused on maximizing income while preserving capital and liquidity[373](index=373&type=chunk) Interest Rate Sensitivity of Fixed-Maturity Securities (as of Dec 31, 2018) | Hypothetical Change in Interest rates | Change In Estimated Fair Value (in thousands) | % Change in Estimated Fair Value | | :--- | :--- | :--- | | 100 basis point increase | $(17,709) | (3)% | | 100 basis point decrease | $17,710 | 3% | - Credit risk is mitigated by investing in a diversified portfolio of fixed-maturity securities that are generally **investment grade**, with **94%** of the portfolio rated BBB- or higher as of December 31, 2018[376](index=376&type=chunk)[377](index=377&type=chunk) [Financial Statements and Supplementary Data](index=63&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for 2016-2018, including balance sheets, income statements, equity changes, and cash flows, along with detailed notes [Consolidated Financial Statements](index=66&type=section&id=Consolidated%20Financial%20Statements) The audited financial statements show total assets of **$1.77 billion** and total liabilities of **$1.34 billion** as of December 31, 2018, with **$27.2 million** net income for the year Consolidated Balance Sheet Highlights (as of Dec 31, in thousands) | Account | 2018 | 2017 | | :--- | :--- | :--- | | Total investments | $526,105 | $567,013 | | Cash and cash equivalents | $250,117 | $153,697 | | Total Assets | $1,768,713 | $1,771,210 | | Unpaid losses and LAE | $432,359 | $470,083 | | Unearned premiums | $472,357 | $475,334 | | Long-term debt, net | $148,794 | $184,405 | | Total Liabilities | $1,343,380 | $1,391,394 | | Total Stockholders' Equity | $425,333 | $379,816 | Consolidated Statement of Operations Highlights (Year ended Dec 31, in thousands) | Account | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Gross premiums earned | $926,326 | $643,304 | $640,518 | | Net premiums earned | $454,182 | $379,564 | $411,721 | | Total revenues | $480,171 | $406,623 | $438,958 | | Losses and LAE | $237,425 | $201,482 | $238,862 | | Operating income | $69,536 | $49,535 | $56,765 | | Net income (loss) | $27,155 | $(1,119) | $33,865 | [Notes to Consolidated Financial Statements](index=71&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies and financial results, including the NBIC acquisition, investment portfolio, goodwill, reinsurance program, loss reserves, and 2018 debt refinancing activities - The company completed the acquisition of NBIC Holdings, Inc. on November 30, 2017, for **$250 million** (**$210M cash** and **$40M stock**), resulting in goodwill of **$106 million**[479](index=479&type=chunk) - The 2018-2019 reinsurance program provides first event coverage up to **$1.6 billion** for Heritage P&C, **$801 million** for Zephyr, and **$1.0 billion** for NBIC, with an estimated net cost of approximately **$252.0 million**[518](index=518&type=chunk)[522](index=522&type=chunk) Reserve for Unpaid Losses Activity (in thousands) | | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Net balance, beginning of period | $154,730 | $139,548 | $83,722 | | Incurred related to current year | $224,080 | $188,914 | $220,071 | | Incurred related to prior years | $13,345 | $12,567 | $18,791 | | Total paid | $(210,303) | $(221,823) | $(183,033) | | Net balance, end of period | $181,852 | $154,730 | $139,551 | - In December 2018, the company entered a new **$125M** credit facility and used proceeds to prepay its **$79.5M** Senior Secured Notes and repurchase a portion of its Convertible Notes[561](index=561&type=chunk)[578](index=578&type=chunk) - As of December 31, 2018, the company's insurance subsidiaries had a combined statutory surplus of **$375.1 million** and met all minimum capital and risk-based capital requirements[597](index=597&type=chunk)[600](index=600&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=112&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - Information regarding changes in and disagreements with accountants on accounting and financial disclosure is **none**[641](index=641&type=chunk) [Controls and Procedures](index=112&type=section&id=Item%209A.%20Controls%20and%20Procedures) The company's CEO and CFO concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2018, with no material changes during the quarter - Management, including the CEO and CFO, evaluated and concluded that disclosure controls and procedures were **effective** as of December 31, 2018[642](index=642&type=chunk) - Management assessed and concluded that internal control over financial reporting was **effective** as of December 31, 2018, based on the COSO 2013 framework[646](index=646&type=chunk) - There were **no changes** in internal control over financial reporting during the most recent quarter that materially affected internal controls[647](index=647&type=chunk) [Other Information](index=112&type=section&id=Item%209B.%20Other%20Information) This item is not applicable - Not applicable[648](index=648&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=113&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2019 Proxy Statement - Information regarding directors, executive officers, and corporate governance is **incorporated by reference** from the company's Proxy Statement[650](index=650&type=chunk)[651](index=651&type=chunk) [Executive Compensation](index=113&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive compensation is incorporated by reference from the company's 2019 Proxy Statement - Information regarding executive compensation is **incorporated by reference** from the company's Proxy Statement[652](index=652&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=113&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership of beneficial owners and management is incorporated by reference from the company's 2019 Proxy Statement - Information regarding security ownership is **incorporated by reference** from the company's Proxy Statement[653](index=653&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=113&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on certain relationships, related transactions, and director independence is incorporated by reference from the company's 2019 Proxy Statement - Information regarding related transactions and director independence is **incorporated by reference** from the company's Proxy Statement[653](index=653&type=chunk) [Principal Accountant Fees and Services](index=113&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services is incorporated by reference from the company's 2019 Proxy Statement - Information regarding principal accountant fees and services is **incorporated by reference** from the company's Proxy Statement[654](index=654&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=113&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the consolidated financial statements, financial statement schedules, and exhibits filed or incorporated by reference as part of the Form 10-K - This section contains the list of financial statements, financial statement schedules, and exhibits filed with the Form 10-K[656](index=656&type=chunk) [Form 10-K Summary](index=115&type=section&id=Item%2016.%20Form%2010-K%20Summary) No summary is provided in this section of the Form 10-K - None[661](index=661&type=chunk)