Heritage Insurance Holdings, Inc. (HRTG) reported mixed first-quarter 2025 results, wherein the bottom line beat the Zacks Consensus Estimate but the top line missed the same. Net premiums earned improved 11.5%, driven by the strong performance of operating businesses. Combined ratio improved 950 basis points (bps) from the prior-year quarter’s level to 84.5.Heritage CEO Ernie Garateix stated, “The first quarter of 2025 marked the third consecutive quarter in which Heritage was impacted by significant catas ...

Heritage Insurance (HRTG) Q1 2025 Earnings Call May 07, 2025 09:00 AM ET Company Participants Kirk Lusk - Chief Financial OfficerErnie Garateix - Chief Executive Officer Conference Call Participants Mark Hughes - AnalystKarol Chmiel - AnalystPaul Newsome - MD & Senior Research Analyst Operator Good morning and welcome to the Heritage Insurance Holdings First Quarter twenty twenty five Earnings Conference Call. Please note today's event is being recorded. I would now like to turn the conference over to Kirk ...

Financial Data and Key Metrics Changes - The company reported a net income of $30,500,000 or $0.99 per diluted share for Q1 2025, compared to $14,200,000 or $0.47 per diluted share in the same quarter last year, reflecting a significant increase in profitability despite $31,800,000 in losses related to California wildfires [5][14] - Gross premiums earned rose to $353,800,000, up 3.6% from $341,400,000 in the prior year quarter, driven by higher gross premiums written [15] - Net premiums earned increased to $200,000,000, up 11.5% from $179,400,000 in the prior year quarter, reflecting growth in gross premiums earned and a reduction in ceded premiums [15] - The loss ratio improved to 49.7%, down from 56.9% in the same quarter last year, indicating better underwriting performance [17] - The net combined ratio for the quarter was 84.5%, down 9.5 points from 94% in the prior year quarter, driven by lower net loss and expense ratios [19] Business Line Data and Key Metrics Changes - The policy count decreased by 3% from Q4 2024, primarily due to normal attrition and seasonality, although there was early ramp-up in new personal lines business production [6] - The company is selectively writing new personal lines business while maintaining a focus on risk management and stringent underwriting [10] Market Data and Key Metrics Changes - The company has achieved rate adequacy in over 90% of its operating regions, positioning it to grow personal lines policies in force [6] - The competitive landscape in the commercial residential market is intensifying, but the company remains committed to ensuring rate adequacy without sacrificing profitability [7] Company Strategy and Development Direction - The company is pivoting its strategy towards managed growth by opening new territories for personal lines business, with nearly 75% of production capacity open as of April 2025 [9][10] - Legislative changes in Florida are expected to positively impact the economics of writing new profitable business, potentially reducing reinsurance pricing in 2026 [10][11] - The company is focusing on enhancing rate adequacy, managing exposure, and investing in technology and infrastructure to drive long-term shareholder value [20][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining profitability despite catastrophe losses, attributing this to strategic initiatives implemented over the years [6][14] - The company anticipates an increase in premiums in force in the second half of the year, with expectations for growth to accelerate in 2026 as new business production ramps up [8][10] - Management noted that favorable legislative impacts are contributing to improved loss trends, which are expected to remain stable [31] Other Important Information - The company ended the quarter with total assets of $2,200,000,000 and shareholders' equity of $329,000,000, with book value per share increasing to $10.62 [20] Q&A Session Summary Question: Guidance on ceded premium dollars for Q2 and Q3 - Management indicated that ceded premium dollars are expected to increase slightly for the remainder of the year, but not significantly [23][25] Question: Outlook on rates over the next few years - Management stated that they are focused on maintaining rate adequacy and will adjust rates as necessary based on the regulatory environment [26] Question: Competition in personal lines and new distribution - Management clarified that they are gradually reopening existing distribution channels and are prepared to compete with new entrants in the market [29] Question: Understanding the dynamics of PIFs and premiums in Florida - Management explained that the decrease in premiums is due to less substantial rate increases and increased competition in the commercial markets [36][37] Question: Competitive environment by state - Management noted that Florida is seeing new entrants, while other states remain stable, with California experiencing more opportunities due to admitted carriers leaving the state [44][46]

Financial Data and Key Metrics Changes - The company reported net income of $418 million or $1.04 per share, with an annualized return on beginning of year equity of 19.9% [12] - Operating earnings were $405 million or $1.01 per share, yielding an annualized return on beginning of year equity of 19.3% [13] - The calendar year combined ratio was 90.9%, with the current accident year combined ratio excluding catastrophic losses at 87.2% [13] - Stockholders' equity increased by more than $500 million or 6.2% over the beginning of the year, reaching a record $8.9 billion [21] Business Line Data and Key Metrics Changes - The insurance segment grew net premiums written to a record of more than $3.1 billion, with a 10.2% increase to $2.7 billion in the insurance segment [16] - The Reinsurance and Monoline Access segment grew 8.2% to a record quarter of $439 million, with growth in property and excess workers' compensation [16] - The expense ratio improved to 27.8%, benefiting from the growth in net premiums earned [15] Market Data and Key Metrics Changes - The company experienced significant industry-wide catastrophic activity, particularly from California wildfires, impacting the loss ratio by 3.7% or $111 million [14] - The current accident year loss ratio excluding catastrophic losses was 59.4%, representing a 30 basis point increase over the prior year [14] Company Strategy and Development Direction - The company aims to create value and emphasizes the importance of avoiding backward steps in value creation [9] - Management highlighted the resilience of the business model, indicating it is built to perform well in both favorable and challenging environments [8] - The company is focused on maintaining rate adequacy while growing the business, particularly in specialty workers' compensation and property lines [24][27] Management's Comments on Operating Environment and Future Outlook - Management noted the current environment is characterized by volatility across political, social, economic, and natural disaster fronts [6][7] - The company remains optimistic about the balance of 2025, indicating strong performance despite challenges [37] - Management is closely monitoring the impact of tariffs on loss costs and pricing strategies [30][61] Other Important Information - The company anticipates investment fund income may be at the lower end of the quarterly range of $10 million to $20 million in the next quarter due to recent market volatility [18] - The credit quality of the investment portfolio remains strong at AA minus, with a duration increase from 2.6 years to 2.7 years [19] Q&A Session Summary Question: What areas contributed to the short tail lines being up 13%? - Management indicated opportunities in property lines and accident and health (A and H) space as significant drivers [41] Question: Can you elaborate on the property pricing trends? - Management noted that while there is competition, they continue to see opportunities to push rates in the property market [44] Question: What is the outlook for reinsurance combined ratios? - Management expressed satisfaction with the current performance but acknowledged uncertainty about future conditions [46] Question: Can you provide details on reserve movements in the insurance segment? - The insurance segment experienced $11 million unfavorable prior year development, while reinsurance was favorable by $12 million [53] Question: How are tariffs impacting loss ratios? - Management stated that tariffs could potentially drive up loss costs, but quantifying the impact is premature at this time [85] Question: What is the growth outlook for specialty workers' compensation? - Management indicated that they see continued growth opportunities in specialty workers' compensation due to less competition [92] Question: How does the company view the impact of social inflation and pricing levels? - Management is encouraged by recent discipline in the market but remains cautious about future pricing trends [79]