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Heritage Insurance Holdings Reports Financial Results for Second Quarter of 2014

CLEARWATER, Fla., Aug. 4, 2014 /PRNewswire/ -- Heritage Insurance Holdings, Inc. (NYSE:HRTG) (Heritage or the Company), a property and casualty insurance holding company, today reported its financial results for the second quarter ended June 30, 2014.

Second Quarter Highlights

  • 22% increase in policy count to 171,000 policies
  • Year-to-date gross premiums written of $168.2 million
  • Year-to-date net income of $17.5 million
  • Combined ratio of 79.9% for the quarter and 81.6% year-to-date
  • Completed initial public offering and concurrent private placement on May 29, 2014
  • Completed the acquisition of 33,000 policies from Sunshine State Insurance Company
  • Completed the placement of 2014 reinsurance program, including $200 million of catastrophe bonds issued by Citrus Re Ltd (an unrelated party)
  • Began commercial residential operations

Bruce Lucas, the Company's Chairman and CEO, said "I am extremely proud of what we accomplished during the second quarter.  We successfully completed two catastrophe bond transactions, closed our IPO, launched our commercial residential program, and completed our acquisition of Sunshine State Insurance policies.  Additionally, we improved on our first quarter results by increasing gross written premium by $30.4 million, increasing net income by 21.3%, and lowering our loss ratio by almost 4 points.  We have positioned Heritage for a great future."

Results of Operations

The following table summarizes our results of operations for the three months ended June 30, 2014, March 31, 2014 and June 30, 2013 and for the six months ended June 30, 2014 and 2013 (in thousands, except per share amounts):








Three Months Ended


Six Months Ended



June 30,


March 31,


June 30,


June 30,


June 30,



2014


2014


2013


2014


2013

Operating Revenue











Gross premiums written


$        99,269


$         68,903


$         81,049


$       168,172


$         97,398

Gross premiums earned


$        64,125


$         60,860


$         28,040


$       124,985


$         48,365

Premiums ceded


$      (19,830)


$        (18,624)


$         (6,416)


$       (38,454)


$         (6,774)

Net premiums earned


$        44,295


$         42,236


$         21,624


$         86,531


$         41,591












Retroactive reinsurance


$                 -


$                  -


$         26,072


$                  -


$         26,072

Total operating revenue


$       46,539


$         43,878


$         48,601


$         90,417


$         68,943

Income before income taxes


$       15,110


$         11,821


$         34,281


$         26,931


$         45,235

Net income


$         9,566


$           7,888


$         21,018


$         17,454


$         28,073












Per Share Data:











Book value per share


$           7.44


$             6.73


$             5.93


$             7.44


$             5.93

Earnings per diluted share


$           0.39


$             0.42


$             1.38


$             0.80


$             2.16












Return on average equity


23.1%


29.9%


107.8%


21.6%


95.9%












Ratios to Gross Premiums Earned:











Ceded premium ratio


30.9%


30.6%


22.9%


30.8%


14.0%

Loss Ratio


30.0%


33.8%


28.1%


31.9%


27.2%

Expense Ratio


19.0%


18.8%


23.0%


18.9%


21.8%

Combined Ratio


79.9%


83.3%


73.9%


81.6%


63.0%












Ratios to Net Premiums Earned:











Loss Ratio


43.4%


48.7%


36.4%


46.0%


31.6%

Expense Ratio


27.5%


27.2%


29.8%


27.3%


25.4%

Combined Ratio


71.0%


75.9%


66.2%


73.4%


57.0%

Quarterly Financial Results

Revenues and net income for the quarter ended June 30, 2014 increased compared to the quarter ended March 31, 2014, but decreased compared to the quarter ended June 30, 2013.  The increase over the first quarter of 2014 is due to continued growth of policies renewed and written during 2014.  The decrease compared to the second quarter of 2013 is due to non-recurring retroactive reinsurance revenue in the second quarter of 2013 and during the second quarter of 2013 premiums ceded being significantly less as a percentage of gross earned premiums due to start-up nature of the company in early 2013, partially offset by significantly lower gross earned premiums in the second quarter of 2013 as compared to the second quarter of 2014.

The Company's gross premiums written for the second quarter of 2014 increased by $30.4 million, or 44.1%, over the prior quarter.  Gross premiums written for the second quarter of 2014 and the first quarter of 2014, respectively, were $99.3 million and $68.9 million. During the second quarter, we completed the acquisition of approximately 33,000 policies from Sunshine State Insurance Company (SSIC), following SSIC's receivership.  This acquisition resulted in assumed premiums written of $29.3 million, representing the unearned premiums on the policies acquired, at the time of the acquisition.  The policies Heritage assumed from SSIC represent approximately $59 million of annual premium.

Below is a table showing the sources of gross premiums written.  Direct premiums written for the quarter ended June 30, 2014 increased by 36.4% over the first quarter, 2014.

Gross Premiums Written




Three Months Ended




June 30, 2014


March 31, 2014


June 30, 2013





(In thousands)


Voluntary Premium


$           10,434


$              7,054


$           4,585

Assumed Renewal Premium


60,638


45,046


23,602

Total Direct Premiums Written


71,072


52,100


28,187

Citizens Assumed Premium


(1,079)


16,803


52,862

SSIC Assumed Premium


29,276


-


-

Total Assumed Premiums Written


28,197


16,803


52,862

Total Gross Premiums Written


$       99,269


$         68,903


$       81,049








Gross premiums earned were $64.1 million for the second quarter of 2014 compared to $60.9 million for the previous quarter.  Gross premiums earned from the SSIC transaction during the four days following the effective date of June 27 were $600,000.

Ceded premiums as a percentage of gross premiums earned were 30.9% for the second quarter of 2014 compared to the first quarter 2014 ratio of 30.6%.

The loss ratio on a gross basis improved to 30.0% in the second quarter of 2014 from 33.8% in the first quarter 2014.  For the six month ended June 30, 2014, the loss ratio was 31.9%.

The Company's expense ratio on a gross basis was 19.0% for the second quarter of 2014 compared to 18.8% for the first quarter, 2014. 

Overall, Heritage's combined ratio on a gross basis was 79.9% for the second quarter of 2014 compared to 83.3% for the first quarter of 2014, with a year-to-date combined ratio of 81.6%.

Book Value Analysis

Book value per share increased 10.5% during the second quarter of 2014.  In May, 2014, the Company completed its initial public offering, a concurrent private placement and the issuance of common stock associated with the exercise of warrants. The net proceeds from these activities totaled approximately $101.1 million in exchange for 13,431,610 shares of common stock issued, or $7.53 per share.  Total comprehensive income for the second quarter would have increased the book value per share at March 31, 2014 by $0.69 to $7.42.




As Of


June 30, 2014


March 31, 2014


December 31, 2013

Book Value Per Share






Numerator:






Common stockholders' equity

$221,607


$110,141


$79,984

Denominator:






Total Shares Outstanding

29,794,960


16,363,350


14,007,150

Book Value Per Common Share

$7.44


$6.73


$5.71


Conference Call Details:

Date and Time:      

August 5, 2014 – 10:00 A.M. ET

Participant Dial-in: 



(United States): 1-877-870-4263


(International): 1-412-317-0760


(Canada): 1-855-669-9657



Website:  To listen to the live webcast, please go to http://www.videonewswire.com/event.asp?id=100065. This webcast will be archived and accessible on the Company's website for approximately 30 days following the call.

About Heritage

Heritage Insurance Holdings, Inc. is a property and casualty insurance holding company headquartered in Clearwater, Florida that began operations in August 2012. Through its subsidiary, Heritage Property & Casualty Insurance Company, it provides personal residential insurance for single-family homeowners and condominium owners, and commercial residential insurance in Florida through a large network of experienced agents. Heritage is led by an experienced senior management team with an average of 26 years of insurance industry experience.

Forward-Looking Statements

Statements in this press release that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "would," "estimate," "or "continue" or the other negative variations thereof or comparable terminology are intended to identify forward-looking statements. The risks and uncertainties that could cause our actual results to differ from those expressed or implied herein include, without limitation, the success of the Company's marketing initiatives, inflation and other changes in economic conditions (including changes in interest rates and financial markets); the impact of new federal and state regulations that affect the property and casualty insurance market; the costs of reinsurance and the collectability of reinsurance, assessments charged by various governmental agencies; pricing competition and other initiatives by competitors; our ability to obtain regulatory approval for requested rate changes, and the timing thereof; legislative and regulatory developments; the outcome of litigation pending against us, including the terms of any settlements; risks related to the nature of our business; dependence on investment income and the composition of our investment portfolio; the adequacy of our liability for losses and loss adjustment expense; insurance agents; claims experience; ratings by industry services; catastrophe losses; reliance on key personnel; weather conditions (including the severity and frequency of storms, hurricanes, tornadoes and hail); changes in loss trends; acts of war and terrorist activities; court decisions and trends in litigation; and other matters described from time to time by us in our filings with the Securities and Exchange Commission, including, but not limited to, the Company's Prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended with the Securities and Exchange Commission on May 27, 2014. In addition, investors should be aware that generally accepted accounting principles prescribe when a company may reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a major contingency. Reported results may therefore, appear to be volatile in certain accounting periods. The Company undertakes no obligations to update, change or revise any forward-looking statement, whether as a result of new information, additional or subsequent developments or otherwise.

 


Condensed Consolidated Balance Sheet

In thousands, except share and per share amounts

 



June 30, 2014


December 31, 2013

ASSETS


(unaudited)



Fixed maturity securities, available for sale, at fair value (amortized cost of

  $132,132 and $105,955 in 2014 and 2013, respectively)

$                          133,417


$                       104,668

Equity securities, available for sale, at fair value (cost of $15,174 and $25,446 in

  2014 and 2013, respectively)

17,538


25,446

Mortgage loan, held to maturity, at amortized cost 

6,021


6,063

Total investments


156,976


136,177

  Cash and cash equivalents


182,116


65,059

  Accrued investment income


1,331


971

  Premiums receivable, net


43,432


10,347

  Prepaid reinsurance premiums


87,264


31,252

  Reinsurance premiums receivable


-


5,337

  Income taxes receivable


10,255


5,073

  Deferred income taxes


-


4,436

  Deferred policy acquisition costs, net


25,392


9,765

  Property and equipment, net


13,768


10,935

  Other assets


5,297


2,626

Total Assets


$                          525,831


$                       281,978

LIABILITIES AND STOCKHOLDERS' EQUITY





  Unpaid losses and loss adjustment expenses


$                            34,533


$                         19,344

  Unearned premiums


159,430


116,243

  Reinsurance payable


81,373


29,591

  Income taxes payable


2,348


2,805

  Deferred income taxes


3,326


-

  Accrued compensation


3,144


505

  Advance premiums


7,905


3,829

  Other liabilities


12,165


8,756

Total Liabilities


304,224


181,073






  Commitments and contingencies


-


-

  Redeemable shares


-


20,921

Stockholders' Equity





  Common stock, $0.0001 par value, 50,000,000 shares authorized, 29,794,960 and 14,007,150 shares issued  and outstanding at June 30, 2014 and December 31, 2013, respectively

3


1

  Additional paid-in capital


183,984


62,849

  Accumulated other comprehensive income (loss)


2,242


(790)

  Retained earnings


35,378


17,924

Total Stockholders' Equity


221,607


79,984

Total Liabilities and Stockholders' Equity


$                          525,831


$                       281,978






 


Condensed Consolidated Statements of Comprehensive Income

In thousands, except share and per share amounts

 



Three Months Ended June 30,

Six Months Ended June 30,



2014


2013


2014


2013

REVENUE:









Gross premiums written


$        99,269


$        81,049


$      168,172


$        97,398

Increase in gross unearned premiums


(35,144)


(53,009)


(43,187)


(49,033)

Gross premiums earned


64,125


28,040


124,985


48,365

Ceded premiums


(19,830)


(6,416)


(38,454)


(6,774)

Net premiums earned


44,295


21,624


86,531


41,591










Retroactive reinsurance


-


26,072


-


26,072

Net investment income


719


124


1,337


335

Net realized gains (losses)


24


(46)


(18)


(48)

Other revenue


1,501


827


2,567


993

Total revenue


46,539


48,601


90,417


68,943










EXPENSES:









Losses and loss adjustment expenses


19,244


7,870


39,831


13,148

Policy acquisition costs


6,384


865


10,857


982

General and administrative expenses


5,801


5,579


12,798


9,567

Interest expense


-


6


-


11

Total expenses


31,429


14,320


63,486


23,708

Income before income taxes


15,110


34,281


26,931


45,235

Provision for income taxes


5,544


13,263


9,477


17,162

Net income


$          9,566


$        21,018


$        17,454


$        28,073










OTHER COMPREHENSIVE INCOME:









Change in net unrealized gains (losses) on investments


$           2,908


$         (1,811)


$           4,918


$         (1,817)

Reclassification adjustment for net realized investment losses

(24)


46


18


48

Income tax expense related to items of other comprehensive income

(1,112)


681


(1,904)


682

Total comprehensive income


$        11,338


$        19,934


$        20,486


$        26,986










Weighted average shares outstanding









Basic


22,119,754


15,203,100


19,256,172


12,983,525

Diluted


24,333,476


15,203,100


21,684,230


12,983,525

Earnings per share









Basic


$            0.43


$            1.38


$            0.91


$            2.16

Diluted


$            0.39


$            1.38


$            0.80


$            2.16










Heritage Insurance Holdings, Inc.
Stephen Rohde
Chief Financial Officer
727-727-7200 ext. 204

investors@heritagepci.com
www.heritagepci.com

 

SOURCE Heritage Insurance Holdings, Inc.

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