Heritage Insurance Holdings, Inc.

Good day and welcome to the Heritage Insurance Holdings Sports Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note today's event is being recorded. I would now like to turn the conference over to Kirk Lusk, Chief Financial Officer for the company. Please go ahead, sir.

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 1995. These statements are based upon management's current expectations and subject to uncertainty and changes in circumstances. In 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-K, 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 press release. With me on the call today is Ernie Garite, our Chief Executive Officer. I will now turn the call over to Ernie.

Thank you, Kirk, and thank you all for joining us today. I will provide an overview of our strategic initiatives for the fourth quarter of 2022. Kirk will provide an update on key financial performance metrics, and then we will open the call for Q&A. We are pleased to announce that we return to positive adjusted net income in the fourth quarter. We are encouraged by the strategic initiatives that we believe will enable Heritage to achieve consistent long-term quarterly earnings and drive shareholder value. These strategic profitability initiatives include rate adequacy and selective underwriting, product selection and capital allocation, as well as diversification of our portfolio of policies throughout 16 states. We remain encouraged by our improving metrics and the long-term positive impact we believe it will have on our underwriting income. We took significant rating actions throughout the book of business this quarter, resulting in an increase in average premium per policy of 18.1% over the prior year quarter and 5.6% over third quarter 2022. These higher rates are the primary driver of our 15.5% increase in gross premiums written, and we expect this trend to continue. Our underwriting continues to be more selective, and we continue to evaluate coverage changes so our product serves our markets but also produces margin. The considerable market disruption this past year has sharpened our focus on timely rate actions tightening underwriting criteria, and expanding restrictions on new business written in over-concentrated markets or products. Even with the tightening of our criteria and limiting new business, our premiums in force are up 9.6% at a historic high of $1.3 billion at the end of the year, while policy count is down 3%. We continue to align our capital with the products and geographies that maximize long-term returns. These efforts have led to a reduced policy count for Florida personal lines business by 16.2% as compared to the prior year period. Our discipline underwriting and rating actions have reduced our Florida personal lines total insured value by 11.1%. while driving a 1.9% decrease in premiums in force. This disciplined underwriting approach resulted in a policy count reduction of 2.5% in other states while generating an 11.9% increase in premiums in force. We will continue to reduce our exposure in products and geographies that we don't believe will generate long-term returns or have limited upside potential in compliance with regulatory requirements. Our focus on maintaining a balanced and diversified portfolio this quarter resulted in our top five personal nine states representing 79.2% of all TIV at fourth quarter 2022 compared to 79.8% of all TIV at fourth quarter 2021. This was further evidenced by the fact that our top four states grew TIV by an average of 2.2%, while the smallest five states grew by 56.7%, with no state representing more than 26% of our total insured value. Product selection is also key to our long-term success. As we reduce business in products or geographies that don't provide sufficient margin, we are entering markets we believe offer opportunity for our company and our customers. For example, in addition to the California market, we entered the Florida market last quarter on an excess and surplus lines basis, which we believe allows us to be nimble and responsive to pricing and product offerings. We have since evaluated an expansion of ENS policies to include South Carolina, where we anticipate offering ENS policies in the second quarter of 2023, while we continue to analyze and evaluate ENS offerings in other states and markets. We are encouraged by our improving metrics and the long-term positive impact we believe they will have on our underwriting income. We believe this discipline also better positions Heritage for the upcoming June reinsurance season. Speaking of reinsurance season, Reinsurance capacity and pricing is a factor in how we allocate capital by product and state. As we discussed in last quarter's call, the cost of reinsurance is expected to continue to increase, and capacity constraints are on the horizon. We appreciate our reinsurance trading partners, with whom we have developed a long-term consistent relationship. The higher reinsurance costs will be partially mitigated through participation by our Florida affiliate in a program created by the Florida legislature last year, which will provide us with some reinsurance limit at no cost to the company. We also expect to have the ability to access the capital markets through Citrus Reeve, which provided a $100 million limit on last year's Northeast CAT XOL program. Given the expected pricing and capacity for catastrophe reinsurance going forward, we will continue to evaluate and adjust our portfolio to manage exposure concentration, which can drive up reinsurance costs. This includes limiting the amount of new business we expect to write and the amount of existing business we may renew, while maintaining compliance with individual state regulations. We are also exiting relationships with agents who are not producing good business for us. We are pleased with the progress we continue to make towards sustainable profitability. Rate increases continue to meaningfully benefit written premiums throughout the book of business, and we remain committed to proactively and appropriately raising rates to offset higher costs for reinsurance as well as higher loss costs as well as taking underwriting actions to improve profitability. Before turning the call over to Kirk, I wanted to express my encouragement for the recently passed Florida Senate Bill 2A during the December special session of the Florida legislature. I am cautiously optimistic that it will accomplish the goals of the legislature, our governor, and the state CFO to stabilize the Florida property insurance market and curtail abusive claim practices. Our strategy will remain unchanged until we see the impacts of the legislative changes in our results. This concludes my remarks. Let me now turn things over to Kirk Luss for a review of the results in the quarter and key financial performance metrics.