Heritage Insurance Holdings Inc (HRTG) (Q1 2024) Earnings Call Transcript Highlights: Strategic ...
Net Income: $14.2 million for Q1 2024, a slight increase from $14 million in Q1 2023.
In-force Premiums: $1.4 billion, up 6.2% from Q1 2023.
Gross Premiums Written: $356.7 million, a 14.9% increase from the previous year.
Gross Premiums Earned: $341.4 million, up 7.7% from the previous year.
Net Premiums Earned: Increased by 8.1% year-over-year.
Total Revenue: $191.3 million, an 8.1% increase from $176.9 million in Q1 2023.
Losses and Loss Adjustment Expenses: $102 million for the quarter.
Net Loss Ratio: Improved to 56.9% from 58.7% in Q1 2023.
Net Expense Ratio: Increased slightly to 37.1%.
Net Combined Ratio: Improved to 94%.
Book Value Per Share: Rose to $7.67, a 26.8% increase from the previous year.
Cash Reserves: Exceed $380 million in cash and cash equivalents.
Russell 2000 Index: Met the threshold for inclusion as of March 30, 2024.
Dividend: Quarterly dividend suspension continued to strengthen financial position and support growth.
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Heritage Insurance Holdings Inc reported a first-quarter net income of $14.2 million, a slight increase from the previous year, indicating a solid start to 2024.
The company has successfully expanded its portfolio in areas with adequate rates and reduced exposure in less profitable areas, demonstrating effective strategic management.
Heritage Insurance Holdings Inc has achieved a 6.2% increase in in-force premiums compared to the first quarter of 2023, marking nine consecutive quarters of growth.
The company has secured a new Southeast-only catastrophe bond providing a $100 million limit, enhancing its reinsurance program and demonstrating a strong commitment to risk management.
Heritage Insurance Holdings Inc's book value per share has increased by 26.8% compared to the prior year, reflecting strong financial health and growth.
Negative Points
Despite overall growth, the company faces increased costs associated with writing property insurance due to more frequent and severe weather events, excessive claim litigation in Florida, and higher reinsurance costs.
The decrease in policies-in-force was a strategic move to improve rate adequacy, but it indicates a reduction in the total number of policies the company manages.
The net expense ratio saw a slight increase due to a reduction in ceding commissions, which could impact profitability if not managed effectively.
Heritage Insurance Holdings Inc continues to suspend its quarterly dividend, which could affect investor sentiment and stock attractiveness.
The company noted an increase in losses and loss adjustment expenses to $102 million for the quarter, driven by higher weather-related losses and unfavorable loss development.
Q & A Highlights
Q: But different sources have been modeling more active storm season this year. What is your internal model saying? And do you think the rate adequacy in Florida is there? A: (Kirk Lusk, CFO) Our internal models show a slight increase in storm activity, though not as much as some other models suggest. Regarding rate adequacy in Florida, it's looking extremely positive due to our recent rate actions and legislative changes. We are cautiously optimistic about the effects of these changes.
Q: The policy acquisition cost ticked up a bit in the quarter. What should we expect the run rate to be in 2024? A: (Kirk Lusk, CFO) In 2024, policy acquisition costs should return closer to the historic norm. The increase this quarter was due to reduced ceding commissions from last year's quota share runoff, which should normalize moving forward.
Q: How do you view the adequacy of pricing at this point, and are we at a juncture where you can feel better about adding to the top line? A: (Ernie Garateix, CEO) We've been taking rate over the past two years and are more comfortable with rate adequacy in specific geographic areas, aiming to grow the top line specifically in these regions. We are also looking at growth opportunities in other areas where we are still focusing on getting more rates.
Q: Did you touch on the takeouts, whether takeouts would be of interest to you at all? A: (Ernie Garateix, CEO) We always do our due diligence on takeouts. Currently, we are more optimistic about organic growth through our value partners and agents, but we continue to consider takeouts as part of our quarterly due diligence.
Q: What is the status of your non-regulated cash and how does it support your growth strategies? A: (Kirk Lusk, CFO) We have over $50 million worth of non-regulated cash in the entities that can be utilized for growth opportunities where we see fit. This positions us well for strategic expansions.
Q: Can you comment on the seasonal impact of winter storms on your first-quarter performance? A: (Kirk Lusk, CFO) Typically, the first quarter is our worst due to seasonality and the impact of winter storms in the Northeast. This seasonal pattern is expected and factored into our strategic planning.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.