Heritage Insurance Holdings, Inc.

Good morning and welcome to the Heritage Insurance Holding Second Quarter 2024 Earnings Call. For questions, please press star 1. Please note today's event has been 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. 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.

Good morning, everyone, and thank you for joining us today. Before I discuss the second quarter, I and the entire Heritage family wish a swift and complete recovery to all those impacted by Hurricane Debbie. Our team has been responding to policyholder needs and remains ready to provide outstanding claims service. With regard to the second quarter, we achieved another period of strong performance for Heritage as we continued to execute on our strategic initiatives focused on achieving rate adequacy, maintaining our underwriting discipline, and allocating capital to drive growth and returns as we strive to deliver solid financial results. As part of our strategic initiatives, we significantly curtailed writing personal new business in most of the Northeast and in the majority of the states in the southeast, starting in 2022. Over the last two years, we have grown our top line through organic growth in our commercial residential portfolio and our E&S products, combined with rate actions across our personal lines portfolio. At the same time, we undertook significant underwriting initiatives aimed at improving the quality of our portfolios. These efforts have significantly improved both our underwriting results and profitability in 2023 and through the first six months of 2024. Our results this quarter are indicative of these actions, with our top-line gross written premium growing $28 million, or 7.1%, while our second quarter net income grew by $11 million, or 143%, both as compared to the second quarter of 2023. A key highlight of the quarter is the continued execution of our underwriting and rate adequacy initiatives, which have had meaningfully benefited our bottom line. From an underwriting perspective, we continue to strategically reduce our exposure in over-concentrated and unprofitable areas while selectively increasing our presence in profitable geographies and products. This discipline underwriting approach resulted in a policy count reduction of just over 69,000 policies or 14.1% throughout our footprint compared to the second quarter of 2023, while our premium in force increased by 81.2 million or 6.1%. Through our risk-based management of policy count and total insured value and proactive engagement with our reinsurance partners, we have maintained a stable supply of indemnity-based reinsurance at manageable costs. Importantly, we expect the headwind from declining policies to begin to moderate as we look forward over the next few quarters. Turning to our rate adequacy initiatives, they have delivered significant rate increases which are earning through our portfolio in 2024, as evidenced by our growing under-earned premium balance. Looking to 2025, we anticipate an even more meaningful amount of rate to earn through our portfolio, which we believe will provide a healthy tailwind to our financial results. More importantly, we have reached an inflection point in our business, which positions us to selectively resume writing new business in these geographies. As a result, we are now pivoting our strategy to one of controlled growth. anchored by our continued focus on risk management and stringent underwriting. This is an opportune time to accelerate growth given the disruption in many of our markets that we expect will open up significant market share. Additionally, recent legislative changes in Florida are having a positive impact on the economics of writing new profitable business in the state. In fact, We started writing business again in July and are optimistic with the growth perspectives that lie ahead. As we turn our new business engine back on, we expect to leverage our existing sales and marketing teams that have largely been in place and will not require incremental expense. Our E&S business is another growth lever for Heritage as premiums grew nearly 30 million or 177% as compared to the year ago second quarter. as we continue to write business in California, Florida, and South Carolina. What makes this business so attractive is that we can more nimbly adjust our rates and coverages to the changing dynamics state by state to ensure that we continue to earn appropriate risk-adjusted returns. Looking forward, we will continue to evaluate more states for E&S opportunities as we focus on our controlled growth strategy. Importantly, we remain committed to maintaining a balanced and diversified portfolio, as no single state represents over 27.3% of our total insured value. This selective diversification helps reduce performance volatility and ensures our long-term stability, which we will believe will be reflected in the value of our company over time. We remain committed to maintaining our focus on disciplined growth, operational excellence, and effective capital management. We believe our strategic initiatives will continue to yield positive results, drive long-term profitability, and enhance shareholder value. With the improvements we have made to the portfolio, we expect our net income to grow and build off the first half results. To conclude, I would like to reiterate our dedication to navigating the complexity of our market with a strategic focus that prioritizes long-term profitability and shareholder value. driven by our dedicated workforce. Kirk, I'll turn it over to you.