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DATE
Thursday, Oct. 29, 2026
CALL PARTICIPANTS
- Chief Executive Officer - Ernesto Jose Garateix CPCU
- Chief Financial Officer - Kirk Howard Lusk
TAKEAWAYS
- Net Income -- $51.1 million, an increase of 1.4% from the prior-year quarter despite $15.8 million in catastrophe losses.
- Diluted EPS -- $1.72, representing a 5.5% increase year over year, aided by a 4.0% reduction in diluted shares outstanding.
- Total Revenue -- $219.2 million, up 3.2% from $212.5 million, driven by higher net premiums earned and investment income.
- Net Premiums Earned -- $205.6 million, growing 5.4% year over year as lower ceded premiums offset a decline in gross earned premiums.
- Gross Premiums Written -- $322.8 million, a 3.1% decrease from $333.2 million, primarily reflecting lower Florida commercial residential premium.
- Ceded Premiums -- $147.2 million, declining 11.8% year over year due to savings from the June 2026 catastrophe excess of loss program.
- Net Investment Income -- $11.4 million, a 17.3% increase driven by a larger invested asset base of $1.4 billion.
- Net Loss Ratio -- 39.6%, increasing 1.3 percentage points from 38.3% due to higher current-quarter catastrophe and weather activity.
- Net Expense Ratio -- 33.4%, improving 1.2 percentage points from 34.6% in the prior-year quarter.
- Net Combined Ratio -- 73.0%, remaining relatively flat compared to 72.9% in the prior-year quarter.
- Catastrophe Losses -- $15.8 million pre-tax, including $9.1 million from Hurricanes Lala and Lowell and $6.7 million from other events.
- Weather and Catastrophe Losses -- $33.6 million in the current accident quarter, up from $13.8 million in the prior-year quarter.
- Prior Year Development -- $14.0 million of net favorable reserve development, compared to $5.0 million in the third quarter of 2025.
- Book Value Per Share -- $20.22, an increase of 42.9% from $14.15 in the prior-year quarter.
- Return on Equity -- 35.1% for the quarter and 36.1% year to date, reflecting substantial capital growth over the past 12 months.
- Debt-to-Capital Ratio -- 10.5%, an improvement from 15.3% a year ago, with long-term debt falling to $70.4 million.
- Share Repurchases -- 1.1 million shares for $27.9 million year to date, representing 3.6% of shares outstanding at the start of the year.
- Florida Commercial Residential PIF -- $232.1 million, down 16.1% year over year due to competitive pricing pressure even as policy counts and insured values rose.
- Personal Residential PIF -- $1.16 billion, up 0.2% year over year, with growth in other states offsetting declines in Florida.
- Total Insured Value -- $371.4 billion, a 1.7% increase from $365.3 billion in the prior-year quarter.
- Texas Market Entry -- 86 excess and surplus lines policies written since the July launch, utilizing existing distribution networks and agents.
- New Jersey Commercial Growth -- 12% increase in commercial premium in force during 2026.
- General and Administrative Expenses -- $23.5 million, a 5.2% increase reflecting higher employee compensation and temporary staffing costs.
- Ceded Premium Ratio -- 41.7%, down from 46.1% a year ago, reflecting the first full quarter of the new reinsurance program.
- Non-regulated Cash -- $58 million at quarter end, with combined statutory surplus of $474.9 million.
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RISKS
- Garateix stated, "The market has become very competitive. With new capacity and aggressive pricing," which resulted in a 16% decline in Florida commercial premium in force year over year.
- Lusk noted that the company absorbed $15.8 million of pre-tax catastrophe losses compared with none in the third quarter of last year, illustrating the impact of returning weather activity.
- Lusk warned that renewal rates in the Florida residential market are expected to decrease by 10% to 18% into next year based on current competitive trends.
SUMMARY
Heritage Insurance Holdings, Inc. (NYSE:HRTG) reported third-quarter net income of $51.1 million, maintaining profitability despite a significant increase in catastrophe and weather-related losses compared to a year ago. Management reported that the company benefited from its diversified geographic footprint and a redesigned reinsurance program, which together lowered the ceded premium ratio by 4.4 percentage points. While the Florida commercial residential market faced intense pricing pressure and new competition, the company prioritized underwriting discipline and rate adequacy over policy volume. Management indicated that capital allocation remains focused on organic growth in new territories and consistent share repurchases, supported by a debt-to-capital ratio of 10.5% and 42.9% growth in book value per share.
- CEO Garateix stated, "We will not chase underpriced business, and that will not change," as the company selectively exited accounts that did not meet return targets.
- Management reported a return to personal lines policy count growth is expected in 2027 as the pace of policy declines in Florida has slowed and most territories have reopened for new business.
- The company launched a new $50.0 million share repurchase program to commence in 2027, following the anticipated completion of the current $34.1 million remaining authorization.
- Management indicated that more than 20 new insurance companies entered the Florida market over the last two years, primarily focusing on takeout business from state-backed Citizens.
- The reinsurance program placed in June generated annualized savings of $63.2 million, and management expects potential further price decreases of 5% to 7% during the 2027 renewal cycle.
- Lusk noted that unrealized losses on the fixed income portfolio were attributed to rising interest rates rather than credit risk, with the company expecting these to reverse as securities reach maturity.
- The company expanded its excess and surplus lines product into Texas in July and expects growth there to potentially exceed the pace of its historical California expansion.
INDUSTRY GLOSSARY
- PIF (Premiums in Force): The total annualized premium of all insurance policies that are active and covered on a specific date.
- E&S (Excess and Surplus Lines): A specialized segment of the insurance market that covers high-risk or unique exposures not written by standard or admitted carriers.
- Ceded Premium Ratio: The portion of gross premiums earned that an insurance company pays to reinsurers to cover a share of its risks.
- Combined Ratio: A measure of profitability in an insurance company; a ratio below 100% indicates the company is making an underwriting profit.
- TIV (Total Insured Value): The full replacement cost of all property and assets covered under an insurance policy or portfolio.
- Super-regional Carrier: An insurance company that operates across multiple states or geographic regions rather than focusing on a single local market or the entire nation.
- Quota Share: A reinsurance arrangement where the insurer and reinsurer share premiums and losses according to a fixed percentage.
Full Conference Call Transcript
Operator: Good morning, and welcome to the Heritage Insurance Holdings Third Quarter 26 Earnings Conference Call. Please note, today's event is being recorded. I would now like to turn the conference over to Kirk Howard Lusk, Chief Financial Officer. Please go ahead.
Kirk Howard Lusk: Good morning, and thank you for joining us today. We invite you to visit the Investors section of our website investors.heritagepci.com where the earnings release and our earnings call will be archived. These materials are available for replay or review at your convenience. Today's call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 2000. These statements are based upon management's current expectations and subject to uncertainty and changes in circumstances. Our earnings press release and our SEC filings, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, and we have no obligation to update any forward looking statements we may make.
For a description of the forward-looking statements and the risks that could cause our results to differ materially from those described in the forward looking statements, please refer to our annual report on Form 10-Ks, earnings release and other SEC filings. Our comments today will also include non GAAP financial measures. The reconciliations of and other information regarding these measures can be found in our release. With me on the call today is Ernesto Jose Garateix CPCU, our chief executive officer. I will now turn the call over to Ernie.
Ernesto Jose Garateix CPCU: Thanks, Kirk. Good morning, everyone. Over the last several years, we have taken deliberate steps to improve our profitability. Reduce volatility, and build a more diversified and resilient company. After a quiet storm season last year, the third quarter brought catastrophe activity including 2 hurricanes in Hawaii and a nor'easter. As a result, we absorbed 15.8 million of pretax catastrophe losses compared with none in the third quarter of last year. And still grew diluted earnings per share to $1.72. Up from $1.63 in the year ago quarter. Net income was 51.1 million up slightly from last year's 50.4 million Through the first 9 months of the year, we have generated net income of 149.3 million.
Up 16% while diluted earnings per share increased 18.5% $4.94. Our annualized return on average equity was 36.1% year to date. And book value per share reached $20.22 up 43% from a year ago. 3 elements of our strategy contributed to the quarter's results. Underwriting discipline, diversification, and our reinsurance program. First, our underwriting discipline. Excluding catastrophes, weather, and prior year development, our loss ratio improved by 4 points in the quarter. This improvement came despite significant pricing pressure in Florida's commercial residential market. Which I will discuss shortly. It reflects years of disciplined rate setting, risk selection, and claims management, as well as Florida's improved legal environment. Second, diversification.
Heritage is a super regional carrier with a diverse portfolio of 17 states. We write business on a surplus lines basis 5 states, More than half of our premium is written outside of Florida, including other states in the Southeast, the Northeast, the Mid Atlantic, Hawaii, and our access and surplus line platforms. That diversification has made our earnings more durable while also providing more flexibility to allocate capital towards markets and products where we see the most attractive risk adjusted returns. Third, our reinsurance program. The program we placed in June with more than 2.2 billion limit and approximately 63 million of annualized savings is working as intended.
It lowered our cost of protection while keeping our net retention at a manageable level. The third quarter was the first full quarter of those savings. And our ceded premium ratio fell to 41.7% from 46.1 a year ago. Now let me turn to market conditions. Starting with the Florida commercial residential market because it is the biggest moving part of our top line this quarter. The market has become very competitive. With new capacity and aggressive pricing. This has pressured our commercial premium in force 16% from a year ago. Even though our policy count and insured values are up. That tells you the decline in premium is being driven by price.
Not a reduction in the underlying business we are writing. We have been very clear on these earnings calls. We will not chase underpriced business, and that will not change. We have walked away from accounts where the price no longer supports an adequate return, and we will continue to do so. I believe our geographic reach which provides us with numerous opportunities to grow our commercial and personal residential business in markets where pricing and returns remain attractive, is undervalued. We are selectively adding new territories outside of Florida to expand our commercial product offering. This includes product offerings on an admitted as well as surplus lines basis.
In New Jersey, for example, our commercial premium in force is up 12% this year. Turning to the personal residential market, trends continue to move in the right direction. As the pace of policy count decline has slowed substantially. In the third quarter, we launched roughly 2.9 thousand personal lines policies. Less than half the decline of a year ago. Premium enforced is up slightly, and average premium per policy is up 5%. Nearly all of our territories are open for new business, and agents in reopen markets continue to tell us they want to place more business with Heritage. Based on those trends, we continue to expect a return to personal lines policy count growth in 2027.
We are also beginning to leverage our platform and capabilities in new markets. In Texas, we wrote our first excess and surplus lines policy in July, and 86 policies written during the quarter. While it is still early and the contribution will be modest this year, the reception from agents has been strong. We believe Texas represents another attractive long term growth where we can leverage our underwriting expertise and existing agent relationships while continuing to expand our geographic reach. Turning to capital. Our position has never been stronger. We ended the third quarter with shareholders' equity of $599 million and a debt to capital ratio of 10.5%.
Year to date, we have repurchased about 1.1 million shares for $27.9 million representing 3.6% of shares outstanding at the start of the year. And we have $34.1 million remaining under our current authorization. Looking forward, our priorities are unchanged. First, we will continue to invest in profitable organic growth as our reopened territories and new markets scale. Second, we will continue to repurchase shares when we believe our stock trades below intrinsic value. Third, we will maintain a strong balance sheet that allows us to absorb weather events without changing course. In closing, we delivered solid earnings and continued book value growth in the third quarter. With weather activity returning to a level higher than last year.
We are confident in the path ahead. And remain focused on disciplined underwriting smart capital allocation, and building long term value for our shareholders. I want to thank our employees, especially our claims team, who supported policyholders through this storm season. Along with our agents, reinsurance partners, and shareholders. Kirk? Back to you.
Kirk Howard Lusk: Thank you, Ernie. Good morning, everyone. For the third quarter, Heritage reported net income of 51.1 million or $1.72 per diluted share compared with $50.4 million or $1.63 per diluted share in the prior year quarter. Despite the higher level of weather activity as Ernie discussed, diluted earnings per share increased 5.5% aided by 4% reduction in diluted shares outstanding from our share repurchase program. For the first 9 months of 2026, net income was $149 million or $4.94 per diluted share compared with $129 million or $4.17 per diluted share a year ago. The annualized return on average equity was 35.1% for the quarter and 36.1% year to date.
The quarterly figure is lower than last year's 49.2% at the third quarter of 2025 because average equity is more than 40% higher not because of a decline in earnings. Total revenue increased 3.2% to $219.2 million from an increase in net earned premium and investment income. Net realized gains and losses included a nonrecurring $2.7 million gain in the prior year quarter, which had a negative comparable impact on revenue in the current quarter. Gross premiums written were 322.8 million, down 3.1%, primarily reflecting lower Florida commercial residential premium, partially offset by growth in personal lines and non Florida commercial markets. Gross premiums earned were 352.8 million compared to $362 million in the year ago quarter.
Ceded premiums declined 11.8% to $147.2 million reflecting the first full quarter of savings from our June catastrophe excess of loss program and the reduction of our Northeast net quota share at year end 2025. The ceded premium ratio was 41.7% down 4.4 points from a year ago. As a result, net premiums earned increased 5.4% to $205.6 million Net investment income increased 17.3% to 11.4 million driven by a larger portfolio as average cash and invested assets were about 185 million higher than a year ago. Cash and invested assets totaled $1.4 billion at quarter end and the fixed income portfolio has an average duration of 3.3 years and remains high quality.
Net losses and loss adjustment expense were $81.4 million compared with $74.8 million in the prior year quarter. And the net loss ratio was 39.6% compared with 38.3% in the prior year quarter. Current accident quarter weather and catastrophe losses totaled $33.6 million compared with $13.8 million a year ago. That included 9.1 million from Hurricanes Lala and Lowell and 6.7 million from the September nor'easter, along with $17.8 million of noncatastrophe weather. Those losses were largely offset by favorable development. We recognized $14 million of net favorable prior year reserve development compared with $5 million a year ago in the third quarter.
The development is spread across several accident years and continues to reflect stable frequency, manageable severity, and claims closing below our expectations. We consider that a strong result especially given the pricing pressure in the Florida commercial residential market. The net expense ratio improved 1.2 points to 33.4%. Policy acquisition costs were essentially flat at $45.1 million as lower premium volume offset by $1.2 million of lower ceding commissions from the reduced net quota share. General and administrative expenses increased 5.2% to 23.5 million, reflecting higher comp and related expenses, and temporary staffing partially offset by a nonrecurring 1 million refund of corporate reinsurance premium.
The net combined ratio was relatively flat at 73% compared to 72.9% in the prior year quarter. Despite the higher net loss ratio of 1.3%. The effective tax rate was 24.5% compared to 26.2% in the prior year quarter reflecting the level of pretax income and permanent items. Shareholders' equity was $599.1 million at September 30 and book value per share was $20.22 up 23.4% from year end and up 42.9% from a year ago. The increase from year end reflects strong earnings partially offset by $27.9 million of share repurchases and $22.7 million increase in accumulated other comprehensive loss net of tax, representing higher unrealized losses on the fixed income portfolio.
Those unrealized losses are driven by rising interest rates, not credit, and we expect them to reverse as the secured securities mature since we do not anticipate selling investments prior to maturity. During the quarter, we purchased 100 thousand shares for 3.3 million bringing year to date repurchases to 1.1 million shares for $27.9 million. We have 34.1 million remaining under our authorization which runs through 12/31/2026. Long term debt was 70.4 million, down 8 million since year end. Our long term debt to capital ratio improved to 10.5% from 15.3% a year ago. We also continue to have 75 million of undrawn delayed draw term loan capacity as well as 15 million available on our revolving credit facility.
Nonregulated cash at quarter end was 58 million and combined statutory surplus was 474.9 million compared with 439.4 million at June 30. To summarize, we delivered solid earnings in a quarter with more normal weather activity, grew book value per share, returned capital to shareholders and further strengthened the balance sheet. As we head into year end, we are well capitalized Our reinsurance program is in place through May 2027 and we see attractive opportunities to continue our progress. Operator, we are now ready to take questions.
Operator: Thank you. We will now begin the question and answer session. You are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star. Then 2. At this time, we will pause momentarily to assemble a roster. Our first question comes from Karol Chmiel with Citizens. Please go ahead.
Karol Krzysztof Chmiel: Yes. Hi. Good morning. I just 2 questions. First 1, regarding the weather loss, you know, it was a total of 33.6, I believe. Total, and of which only 15.8 were the actual cat losses in Hawaii and the Northeast. So I am just wanting to know can you give more color on the on the on the balance of the weather losses outside of the cats? And then maybe you can help define those losses and how you how you, you know, define them internally.
Kirk Howard Lusk: Yeah. Those are just, you know, typically much smaller events And we had about probably million dollars just under $6 million in the Northeast and a little over like $12 million in the Southeast, you know, predominantly in Florida. And so they are just smaller storms, either hail, wind, that type stuff where we just have some smaller losses.
Karol Krzysztof Chmiel: Okay. Okay. So it is a compilation of different losses throughout the East Coast. Then just my second question would be just the growth comment that Ernie made regarding New Jersey. Is there any more that you want to maybe share about your growth in the Northeast?
Ernesto Jose Garateix CPCU: Yes. So that comment was specifically to the commercial lines. We made the comment about where Florida is and the aggressive pricing and the competition there. We have been growing with the commercial book in other regions such as New York, New Jersey, Hawaii, and just launched South Carolina as well.
Karol Krzysztof Chmiel: Okay. And then just lastly, just in general, because I think there was a comment in the press release that personal residential is off offsetting the pressures of the Florida commercial residential Is there any particular region that you wanna maybe mention is that is contributing to that balance?
Kirk Howard Lusk: I mean, it is mostly the Northeast, but the Hawaii did have a little bit of impact there also.
Karol Krzysztof Chmiel: Okay. Great. Thank you so much. Yep.
Operator: Thank you. The next question comes from Mitch Rubin with Raymond James. Please go ahead.
Mitch: Hey, good morning. This is Mitch Rubin on for Greg Brody. Congrats on the quarter. What rate changes are you achieving on Florida residential today, and how does that compare with earlier in the year?
Kirk Howard Lusk: The retention rates are in the mid-80s. And they are actually above where they were previously. So it is improved slightly. Although, I must admit, when we look going forward, we are expecting it did not climb significantly from where it is, just from a retention standpoint. Our new business has been strong. And we actually expect possibly that we can pick up a little bit more on the new business side.
Mitch: Oh, I am sorry. I was looking for the renewal rate. Not retention.
Kirk Howard Lusk: Oh, the renewal rate. Oh, the price rate?
Mitch: Yes. Thank you.
Kirk Howard Lusk: Yes. Okay. I mean, we are expecting that to continue to decrease. I think that if we look kind of into next year, I think that you could be looking at another 10% to 18% based upon what we are seeing right now. We are hoping it holds a little bit more. 1 of the things that we are seeing, which is very favorable to that book of business is even with the price decreases, we are not seeing much of an increase in the loss ratio. It did creep up a little bit a couple of quarters, but it seems to be leveled off. And so therefore, even with the price decreases, it is a profitable book of business.
Mitch: Thank you. Makes sense. As you approach NBIC's year end quota share renewal, how are you thinking about your target cession level?
Kirk Howard Lusk: We have been dropping that in the last couple of years by anywhere from 5% to 7%. And based upon pricing, I think that we probably look at something comparable.
Mitch: Appreciate the answers. Alright. Thank you.
Operator: Our next question comes from Axel precedent with Truist. Please go ahead.
Axel: Hi. Good morning. Thank you. I am calling in for Mark Hughes. Yeah. I am sorry if I missed this in the prepared remarks, but are there any early indications on losses from Hurricane Isaias earlier this month?
Ernesto Jose Garateix CPCU: Yeah. So to begin with, we do not have a lot of exposures up there. Just to give you kind of a perspective, we did go up there in the Pensacola Destin area. We had our hurricane cap team there. Had 2 insurance villages. 1 was closed down. This. The. Destin was closed down within 3 days. Pensacola lasts a little bit longer. But we do not expect a lot of losses from that area just because we do not have a lot of exposures there.
Axel: Great. Thank you. And then what are your thoughts more broadly around top line trajectory, puts and takes with the Florida commercial pricing. Are you expecting that to inflect positively in gross premiums written in Q4? And then should we expect any material contribution from the Texas product in 2027?
Ernesto Jose Garateix CPCU: I did. I am hesitant to say it is going to be material, but I think it is going to be positive over a period of time. I think that when we look at it, it is historically speaking, it took us about 4 years to get to $40 million of premium in California. I would expect Texas has the potential to grow a little faster than that. Because we already had a distribution network there. Existing agents. So I think that could accelerate a little further. I think that when we look at some of the price decreases, some of the competitive pressures, that type of stuff, I think our growth is going to be relatively minor.
So we are talking about into the single digits.
Axel: Thank you. And then on the ceded premium ratio, how do you expect that to trend as premiums grows Mid-41s, is that a good run rate, or would you expect that to go any lower?
Kirk Howard Lusk: I think that is a good run rate. I think that we will see what the renewal looks like next year. I think that there is a good possibility it could be down a little further next year. So that would have a favorable impact towards the second half of next year.
Axel: Great. Thank you very much. Thank you.
Operator: Our next question comes from Cameron Bianchi with Piper Sandler. Please go ahead.
Cam: Hi. This is Cameron Bianchi on for Paul Newsome. Congrats on the quarter. Thank you. Just curious if you could elaborate on any incremental competition for the personal market, if any?
Ernesto Jose Garateix CPCU: I am sorry. Was competition on the personal lines market?
Cam: Yes.
Ernesto Jose Garateix CPCU: Yeah. In Florida. Yeah. Yeah. So, again, in Florida, we have seen more competition come in. Over 20 new companies over the last 2 years. Most of those companies have been focused on the takeout. We have not done a takeout since 2018. But what we do expect into 2027 is some of those start to write new business out there. So we are starting to see some of these new companies out there, which, again, is why our focus has been on the diversification, launch into Texas and expanding our product lines through our geographic footprint.
Cam: Got it. And then on your footprint outside of Florida, what geographies do you find to be most attractive at this point in time? And where are you seeing the most growth outside of Florida?
Ernesto Jose Garateix CPCU: Yeah. So it is pretty spread. You know, again, attractive in the Northeast where we are rate adequate. You know, in the Northeast New York, New Jersey, Connecticut has been growing for us. Hawaii is rate adequate as well, and they have seen some growth, out there as well. So we are pretty optimistic about, you know, the entire footprint and where we are at. The 1 thing is we will remain underwriters and make sure that, again, we are getting pricing where it is attractive based on risk return.
Cam: Got it. Just 1 more from me. Like you are prioritizing profitability overgrowth in commercial residential. You know, what would it take for the tides to change in that market from a growth perspective?
Ernesto Jose Garateix CPCU: Yeah. it is a great question, in the sense that there are entrants into that market. And, again, there is going to be-- my opinion would be some external market conditions that would change, whether that is an event, whether that is reinsurance pricing, But, again, we remain disciplined and become underwriters first and foremost and understand you know, what that risk return is going to be out there. And I think, you know, the agents have valued that. Our PIF count is actually up. Even given some of the pricing being down. Got it.
Cam: Thank you. I appreciate it. Thank you.
Operator: The next question comes from Brendan McCarthy with Sidoti & Company. Please go ahead.
Brendan: Great. Good morning. Thanks for taking my question here. Yeah. I just have a quick question on the reinsurance savings. I think you outlined about $60 million in reinsurance savings secured this year. What kind of runway for additional savings do you see in 2027 and beyond? And maybe kind of touch on what markets are driving those savings.
Kirk Howard Lusk: Okay. I think that right now, what we are hearing is that because of the lack of storms, some additional capacity coming into the marketplace, I mean, I think we are hearing it could be down anywhere from a -5 to -7 next year. And based upon the trend, I mean, it is possible it could be higher than that. I think that most people are looking for hopefully, it is going to stabilize a little bit around that -5% to -8%. Which would then help us again a little bit more next year. The thing I did this year was the reduction was up around 20%.
So, therefore, that is why it was the larger number So I would expect, you know, a decrease next year, but not to the same extent as this year.
Ernesto Jose Garateix CPCU: Yeah. And we would expect after the 1/1 renewals to get a better idea of that. So we are still a little early in the stages and. But having discussions with reinsurers as we speak.
Brendan: Understood. that is helpful context. that is all for me. Thank you.
Operator: Thank you. This concludes our question and answer session. I would like to turn the conference back over to Ernesto Garateix for any closing remarks. Please go ahead.
Ernesto Jose Garateix CPCU: Yes. We would like to thank you again for joining the call and hope everyone has a great day.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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