Heritage Insurance Holdings, Inc.

Good morning and welcome to the Heritage Insurance Holdings Fourth Quarter and Full Year 2025 Earnings Conference Call. 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. Good morning, everyone, and thank you for joining us today. On this morning's call, I am going to review the successful execution of our strategic initiatives in 2025 and our full year results. review the competitive advantages that Herridge has built over the years, which positions us for success looking out over the medium term, and conclude with our strategic priorities for the year ahead. Kirk will then discuss our fourth quarter results, and we will open the call for your questions. As we have been discussing over the past several years, we have been intentional and disciplined in reshaping the foundation of our business. As an organization, we set out to transform our business with the goal of developing a model that delivers consistent earnings and sustainable shareholder value even in a challenging and dynamic market. To do that, we anchored our strategy around three initiatives that continue to guide every major decision that we make. First, we committed to generating true underwriting profit, not through reliance on market cycles, but through rate adequacy and more selective discipline underwriting, as well as a solid distribution network. We have made hard choices, re-underwriting our book where necessary, ensuring that every policy we write meets our profitability standards and aligning ourselves with the profitable and professional agents. Second, we focused on strategically allocating capital towards the products and geographies that offer the strongest returns, while being deliberate about where we pause, where we reinvest, and where we expand. This capital discipline has positioned us for thoughtful, measured growth with a focus on underwriting discipline and risk management. And third, we prioritized targeting a balanced and diversified portfolio. By expanding across multiple states and product lines, we strengthened the stability of our earnings, reduced our exposure to regional volatility, and fortified the company against the risks that define our industry. I'm proud to say that in 2025, we executed on these initiatives with precision and measurable success. We reopened profitable geographies, deploying capital in a thoughtful way designed to sustain long-term profitability. We maintained persistent underwriting discipline, supported by an ongoing focus on achieving and maintaining rate adequacy. We deepened our use of data-driven analytics, further strengthening the quality of our decision-making. We enhanced our customer service and claim capabilities, ensuring that the experience we deliver continues to improve. And importantly, we leveraged our infrastructure and operational capabilities, building a scalable platform that positions us for responsible, profitable growth in the years ahead. These initiatives and the consistent execution behind them are what continue to strengthen Heritage's earnings power, which can further be seen in our full year 2025 results, where we delivered net income of $195.6 million, or $6.32 per share, representing a strong increase from the full year 2024's net income of $61.5 million or $2.01 per share. Of note, our full-year results included $31.8 million of net pre-tax losses and loss adjustment expenses related to the California wildfires in the first quarter of 2025, which further highlights the significant earnings power within Heritage in which we remain focused on growing further. We also grew our tangible book value per share 72.5% to $16.39 at December 31, 2025, from $9.50 at December 31, 2024, while achieving an ROE of 49% for the year ending December 31, 2025. As we look ahead to 2026, our strategy continues to build on the strong foundation that we have created. First and foremost, we have achieved great adequacy in more than 90% of the geographies where we operate, and they are currently open for new business. In fact, new business premium production increased over 60% in the fourth quarter as compared to the fourth quarter last year. We have continued to evaluate new geographies and products that will advance our diversification and expansion efforts. As a result of that rigorous evaluation process, I would like to mention that we plan to enter Texas later this year on an excess and surplus lines basis. Our production will focus predominantly on Tier 1 and some Tier 2 geographies and will leverage our existing relationships as well as some new distribution partners. As we have done in California, which is also ENS, we will have underwriting and marketing employees in the state of Texas to stay abreast of the changing market needs and issues. As expected, we will maintain our focus on underwriting discipline, exposure management, and rate adequacy in our existing and new geographies. we have a long runway ahead to profitably grow our business and deliver value to our shareholders. A major emphasis in 2026 will also be the continued enhancement of our data-driven analytics, including deeper integration of AI and advanced technology tools. These capabilities will sharpen our risk selection, improve operational efficiency, and help us identify opportunities across regions with greater precision while being compliant with regulatory requirements for AI use. At the same time, we remain committed to refining our customer service and claim capabilities, building on the improvements already underway to deliver a more streamlined, transparent experience for agents and policyholders. And throughout 2026, we will continue leveraging the scale and flexibility of our infrastructure, our systems, processes, and regional operating model to support sustainable future growth. Fortunately, we have ample room to grow our business and can choose to be selective across our geographic footprint. Lastly, reinsurance remains a critical component of our business. and we have maintained a stable indemnity-based reinsurance program at manageable costs with an excellent panel of highly rated and collateralized reinsurers. We regularly meet with our reinsurance and ILS partners who continue to support our growth and whom we anticipate will offer incremental capacity as we look to our June 1st renewal. Additionally, we continue to see the benefits of tort reform as industry loss expectations for Hurricane Milton have been steadily coming down, largely due to reduced litigation, which benefits not only us, but our panel of reinsurers. Given the improved litigation environment in Florida, the lack of catastrophe losses, and the reinsurance capacity entering the traditional NILS markets, We are optimistic that reinsurance pricing will continue to improve in 2026. We also believe that favorable reinsurance will benefit the consumer in the terms of cost of insurance. To conclude, we have strong momentum as we enter 2026 with a positive outlook for both our growth and profitability. That said, we are not complacent with our results and strive to improve our organization and operations. I would also like to reiterate our dedication to navigating the complexities of our market with a strategic focus that prioritizes long-term profitability, shareholder value, and customer service driven by our dedicated workforce, who I would like to personally thank for their efforts over the last year.