Heritage Insurance Holdings, Inc. Q3 FY2025 earnings call

• Delivered strong third quarter results with net income up significantly. - Successful implementation of strategic initiatives to achieve rate adequacy, manage exposure, enhance underwriting discipline, and improve claims/service levels. - Personal lines book re-underwritten with rate increases, in-force premium up to $1.44 billion. - New business premium written for Q3 was $36 million, up 166% y-o-y; policy count decline moderated. - Regional operations with agility, maintaining strong relationships with agents. - Reinsurance program stable, benefits from tort reform, optimistic on reinsurance pricing improvement. - Restarted share repurchase program, repurchased 106,000 shares for $2.3 million.

In the third quarter, Heritage Insurance Holdings reported net income of $50.4 million or $1.63 per diluted share, a significant improvement from the $8.2 million or $0.27 per diluted share in the third quarter of 2024. Gross premiums earned rose to $362 million for the 9 months ended September 30, up 2.2% from the prior year quarter. Net premiums earned were $195.1 million, down 1.9% due to increased ceded premiums. The net loss ratio improved to 38.3% from 65.4% in the prior year quarter. The net expense ratio was 34.6%, a 60 basis point improvement. The net combined ratio was 72.9%, an improvement of 19.6 points. Total assets were $2.4 billion, shareholders' equity $437.3 million, and book value per share was $14.15 at September 30, 2025.

• Expect policy count growth in coming quarters and full year policy growth in 2026. - Anticipate revenues to return to growth through 2026 as new business efforts ramp. - Optimistic on reinsurance pricing improvement in 2026. - Capital position supports managed growth strategy, with ability to review capital allocation and restart share repurchase.

• Uncertainty in forward-looking statements due to changes in circumstances. - Risks related to reinsurance program dependent on reinsurer support and market conditions. - Impact of litigation and regulatory changes on insurance costs.

Q: Growth prospects, you talked about the PIV growth in 2026. How do you evaluate the opportunity in Florida versus outside of Florida?

A: Sure. So there's still plenty of opportunity for us in Florida. If you kind of go back to a couple of years, we derisked a bit in Florida, especially in some of the Tri-County areas. So there's plenty of runway for us in Florida. We understand there's more new markets in Florida, but our name has still been predominant with the agents, and that's why we talked quite a bit about our agency relationships, which remain strong. And the agents have been -- we've been working with the agents. They have reached out to us about continuing to write. So as we mentioned on the call there, $30-plus million of new business premium is something that is only gaining more momentum in Florida.

Q: In the meantime, I'll ask, how do we think about the pricing or competitive environment in Florida? It looks like commercial property is really a tremendous amount of pressure. I know in homeowners, the pricing cycle is a whole lot slower. But what's your current anticipation in terms of pricing? I think you've talked about filing for maybe low mid-single-digit rate decreases in 2026. Is that still a fair assessment? And is that...

A: That's still a fair assessment, right, we have a current filing with the -- pending with the OIR for a rate decrease. And the plan would be as well in '26, we've also planned for a single-digit rate decrease. Regarding commercial, you're right, there is more pressure, but I also remind people where the beginning point is when you're talking about CRs in the 70s, yes, they have pushed up slightly to 80%, but an 80% CR is still very profitable in the commercial lines arena.

Q: The growth prospects, you talked about the PIV growth in 2026. How do you evaluate the opportunity in Florida versus outside of Florida?

A: Sure. So there's still plenty of opportunity for us in Florida. If you kind of go back to a couple of years, we derisked a bit in Florida, especially in some of the Tri-County areas. So there's plenty of runway for us in Florida. We understand there's more new markets in Florida, but our name has still been predominant with the agents, and that's why we talked quite a bit about our agency relationships, which remain strong. And the agents have been -- we've been working with the agents. They have reached out to us about continuing to write. So as we mentioned on the call there, $30-plus million of new business premium is something that is only gaining more momentum in Florida.

Q: About $17 million of that new business was Florida.

A: Okay. So kind of consistent with your current mix. And then ceded premiums in absolute dollars, is this a good starting point when we think about the fourth quarter, the $166 million, $167 million?

A: Yes. It's probably going to be a little high. We had about a $4 million onetime adjustment in there due to reinstatement premium. So yes, I think if you look at backing off some of that, then you're going to be about where the number needs to be.

Q: How much growth can you support with the surplus that you've got, the $352 million up pretty substantially? Will that be good enough for kind of what you're seeing in 2026?

A: Yes. Well, I think if you look at kind of where our change in statutory surplus is for the year, it's up about $66 million. And then if you assume that, that is 3:1 ratio, that type of stuff, that gives us over $180 million of net earned premium to write. And again, that's net written. So then you actually figure that, that number is going to be a little higher because of the ceded. And so therefore, I mean, you're looking at roughly well over $225 million, $250 million of premium that we can write based upon that increase in surplus. And then again, that doesn't include any improvements in that number in the fourth quarter.

Q: I just have a follow-up question to Mark's question about the new business. So if $17 million of the $36 million was Florida, roughly $19 million was outside of Florida. Can you just maybe comment on where you're seeing the most momentum of those territories outside of Florida?

A: Yes. So Virginia is a new growing state for us as well as growth in Hawaii. New York is also ramping up. And the one reminder there is that we did take additional 9%, which made us rate adequate in New York. So that started midyear. So that is only beginning and will kind of roll into '26. So additional states as California on an E&S basis also is another positive momentum growing for us.

Q: Just a quick question on this favorable development of $5 million. Is this still due to the reserve strengthening of last year?

A: Yes. It has partially to do with that, and it just also has to do with just kind of what we're seeing in the underlying portfolio. So again, we think that we're adequately reserved for sure. So yes, it does have to do a little bit with that where we did take a hard look at last year.