Heritage Insurance (US:HRTG)2022-08-05 19:56Financial Data and Key Metrics Changes - The company reported a net income of $2.9 million or $0.11 per diluted share for Q2 2022, a significant improvement from a net loss of $4 million in the prior year quarter [10][19] - The net combined ratio improved to 99.4%, down from 105.2% in Q2 2021, reflecting a 4.7 point improvement in the loss ratio and a 1.1 point improvement from expenses [25][26] - Shareholders' equity decreased to $180.5 million or $6.80 per share, primarily due to a goodwill write-down and unrealized losses on fixed income investments [27][29] Business Line Data and Key Metrics Changes - The average premium per policy increased by 11.5% from Q2 2021, driven by strategic rate increases and selective underwriting [12][13] - In-force premiums grew by 3% from Q1 2022 to over $1.2 billion, while policies in-force decreased by 1.6% from Q1 [22] - The company suspended offering new personal residential policies in highly populated counties in Florida, resulting in an 18.9% reduction in policies in force in the state [16] Market Data and Key Metrics Changes - Net current accident year weather losses increased to $38.1 million, up 7.34% from the prior year quarter, impacting the net loss ratio by 24.1 points [12][25] - The company experienced a nearly 19% year-over-year decrease in personal lines policies in force in Florida [22] Company Strategy and Industry Competition - The company remains committed to proactive rate increases to offset higher loss costs and improve profitability [14][23] - The management is focused on generating underwriting profits and has taken actions to de-risk in certain areas while expanding in others [28][29] - The company is actively evaluating the impacts of legislation on the homeowners insurance marketplace, particularly in Florida, and is cautiously optimistic about potential positive changes [17][18] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about the litigious practices in Florida, which are driving up costs for property insurance buyers [17] - The company anticipates that rate increases will continue to align with loss costs across all geographies [23] - Management believes that consistent profit generation is essential to regain company value and achieve target returns on equity [29] Other Important Information - The company completed its catastrophe reinsurance program, integrating traditional reinsurance and insurance-linked securities [14] - The adjusted book value per share, after adding back unrealized losses, is $8.35 per share [27] Q&A Session Summary Question: What are the typical rate hikes in Florida and other markets? - The rate increases in Florida have been in the mid-teens, with additional inflation guard factors leading to total premium increases exceeding 20% [37][39] Question: How do you see loss cost trends at this point? - Loss costs have been around 11% to 12% over a 3, 5, and 10-year timeframe, with some recent material price decreases [40][41] Question: What are the RBC ratios looking like? - The RBC ratios are in excess of 320 for Heritage, 400 for Zephyr, and 370 for NBIC [54] Question: What are the expectations for potential regulatory changes in Florida? - The company appreciates recent reforms but believes more needs to be done to limit the litigious nature of the market [63] Question: Will the company consider new markets for growth? - The company is always looking at new markets while continuing to limit exposure in Florida [65]