Heritage Insurance (HRTG) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the unaudited financial statements, management's discussion, market risk disclosures, and controls and procedures Item 1. Unaudited Financial Statements The unaudited condensed consolidated financial statements for Heritage Insurance Holdings, Inc. as of June 30, 2025, show an increase in total assets to $2.54 billion and a significant rise in total stockholders' equity to $383.3 million Condensed Consolidated Balance Sheets This section presents the company's financial position, highlighting assets, liabilities, and equity at specific dates Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 (unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $2,536,755 | $2,468,924 | | Total Investments | $671,329 | $663,443 | | Cash and cash equivalents | $473,465 | $452,666 | | Reinsurance recoverable on paid and unpaid claims | $524,045 | $740,204 | | Total Liabilities | $2,153,453 | $2,178,124 | | Unpaid losses and loss adjustment expenses | $713,183 | $1,042,687 | | Unearned premiums | $762,235 | $702,707 | | Reinsurance payable | $502,280 | $227,060 | | Long-term debt, net | $92,361 | $116,319 | | Total Stockholders' Equity | $383,302 | $290,799 | Condensed Consolidated Statements of Operations and Other Comprehensive Income This section details the company's revenues, expenses, and net income over specific reporting periods Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Gross premiums written | $410,968 | $424,530 | $766,965 | $781,214 | | Net premiums earned | $196,316 | $190,316 | $396,350 | $369,742 | | Total revenues | $208,035 | $203,571 | $419,554 | $394,873 | | Losses and loss adjustment expenses | $75,620 | $105,928 | $175,027 | $207,963 | | Total expenses | $143,165 | $175,932 | $312,248 | $344,530 | | Net income | $48,024 | $18,869 | $78,498 | $33,094 | | Diluted EPS | $1.55 | $0.61 | $2.54 | $1.08 | Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in the company's equity, including net income and other comprehensive income - Total stockholders' equity increased from $290.8 million at December 31, 2024, to $383.3 million at June 30, 2025. The growth was primarily driven by net income of $78.5 million for the six-month period[19] - Accumulated other comprehensive loss improved (became less negative) from $(28.6) million at the end of 2024 to $(17.5) million at June 30, 2025, mainly due to net unrealized gains on investments[19] Condensed Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | For the Six Months Ended June 30, 2025 | For the Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $44,129 | $156,538 | | Net cash provided by (used in) investing activities | $3,256 | $(138,662) | | Net cash (used in) provided by financing activities | $(24,098) | $671 | | Increase in cash, cash equivalents, and restricted cash | $23,287 | $18,547 | | Cash, cash equivalents and restricted cash, end of period | $486,932 | $491,886 | Notes to Unaudited Condensed Consolidated Financial Statements This section provides additional details and explanations for the financial statements, including significant accounting policies and subsequent events - The company operates as a single reportable segment: residential property insurance[29][138] - The company's reinsurance program for 2025-2026 provides first event coverage up to $1.6 billion for Heritage P&C, $1.1 billion for NBIC, and $865.0 million for Zephyr. The total available limit for 2025 is an aggregate of $3.75 billion[79][80] - Subsequent to the quarter end, on July 22, 2025, the company amended and restated its credit agreement, increasing the total senior secured credit facilities to $200.0 million. On July 23, 2025, the company sold its Clearwater property for $16.0 million, anticipating a pre-tax gain of approximately $2.5 million[142][143][145] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong Q2 2025 results, with net income of $48.0 million and an improved net combined ratio of 72.9%, driven by rate actions and lower losses Overview of Financial Results This section provides a high-level summary of the company's financial performance for the reporting period - Q2 2025 net income was $48.0 million ($1.55 per diluted share), up from $18.9 million ($0.61 per diluted share) in Q2 2024. The improvement is attributed to rate actions, underwriting actions, and targeted exposure management[160] - The net combined ratio for Q2 2025 improved to 72.9%, a 19.6 point improvement from 92.5% in the prior year quarter, driven by a lower net loss ratio (38.5% vs 55.7%) and a lower net expense ratio (34.4% vs 36.8%)[160][181] Results of Operations This section provides a detailed analysis of the company's revenues, expenses, and profitability drivers Comparison of Key Metrics (Q2 2025 vs Q2 2024) | Metric | Q2 2025 (Million USD) | Q2 2024 (Million USD) | % Change | | :--- | :--- | :--- | :--- | | Gross Premiums Written | $411.0 | $424.5 | (3.2)% | | Net Premiums Earned | $196.3 | $190.3 | 3.2% | | Losses and LAE | $75.6 | $105.9 | (28.6)% | | Net Income | $48.0 | $18.9 | 154.5% | Comparison of Key Metrics (Six Months 2025 vs 2024) | Metric | 6M 2025 (Million USD) | 6M 2024 (Million USD) | % Change | | :--- | :--- | :--- | :--- | | Gross Premiums Written | $767.0 | $781.2 | (1.8)% | | Net Premiums Earned | $396.4 | $369.7 | 7.2% | | Losses and LAE | $175.0 | $208.0 | (15.8)% | | Net Income | $78.5 | $33.1 | 137.2% | - Losses and LAE for Q2 2025 decreased 28.6% year-over-year, driven by lower attritional losses, favorable prior year loss development of $2.3 million (compared to adverse development of $8.7 million in Q2 2024), and lower weather losses[172] Financial Condition and Liquidity This section assesses the company's financial health, capital structure, and ability to meet short-term and long-term obligations - Total shareholders' equity increased by $92.5 million to $383.3 million at June 30, 2025, from $290.8 million at December 31, 2024, primarily due to net income and a reduction in unrealized investment losses[215] - Long-term debt decreased by $24.0 million to $92.4 million at June 30, 2025, from $116.3 million at year-end 2024, mainly due to the payoff of a $19.2 million FHLB-ATL loan in March 2025[214][222] - The company's credit agreement was amended and restated on July 22, 2025, increasing the term loan facility to $75 million, adding a $75 million delayed draw term loan, and extending the maturity to July 2030[224] Item 3. Quantitative and Qualitative Disclosures about Market Risk Market risk exposure primarily involves interest rate and credit risk, with a portfolio duration of 3.0 years and an A+ weighted-average credit rating - The duration of the company's financial instruments subject to interest rate risk was 3.0 years at June 30, 2025, compared to 3.1 years at December 31, 2024[249] - Credit risk is managed through a high-quality portfolio; the weighted-average credit quality rating of the fixed maturity securities portfolio was A+ as of June 30, 2025[249] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal controls - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[252] - There were no changes in internal controls over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[253] PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, other information, and exhibits Item 1. Legal Proceedings The company is involved in routine legal proceedings not expected to materially impact its financial condition or 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 on its business or financial condition[254] Item 1A. Risk Factors No material changes to the company's risk factors have occurred since the 2024 Annual Report on Form 10-K filing - No material changes have occurred in the company's risk factors since the filing of the 2024 Annual Report on Form 10-K[255] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable for the reporting period Item 5. Other Information Chairman, CEO, and CFO adopted Rule 10b5-1 trading plans for pre-arranged sales of company common stock during Q2 2025 - During Q2 2025, the Chairman, CEO, and CFO each adopted a Rule 10b5-1 trading plan for selling shares of the company's common stock[256] - The plans provide for the potential sale of up to 250,000 shares by the Chairman, 100,000 shares by the CEO, and 60,000 shares by the CFO, subject to certain conditions[256][257] Item 6. Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including CEO and CFO certifications