Heritage Insurance (US:HRTG)2019-05-12 09:42Financial 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]