Earnings call transcript: Heritage Insurance Q2 2025 beats EPS, stock drops

Heritage Insurance Holdings Inc. (market cap: $568.28M) reported its earnings for the second quarter of 2025, surpassing expectations with an EPS of $1.55, significantly higher than the forecasted $0.98. Despite this positive earnings surprise, the company’s revenue fell short of expectations, coming in at $208 million against a forecast of $216.05 million. Trading at a P/E ratio of 8.47, the stock appears fairly valued according to InvestingPro’s Fair Value model. The mixed financial results led to a 15% drop in Heritage Insurance’s stock price, closing at $21.66 after the earnings announcement.

Key Takeaways

• Heritage Insurance’s EPS of $1.55 beat the forecast by 58.16%.
• Revenue of $208 million was below the expected $216.05 million.
• Stock price fell by 15% post-earnings release.
• New business production increased by 46% year-over-year.
• The company is expanding its reinsurance program.

Company Performance

Heritage Insurance showed strong earnings growth in the second quarter of 2025, with net income reaching $48 million, up from $18.9 million in the same quarter last year. The company’s gross premiums earned rose slightly by 1% to $353.6 million, while net premiums earned saw a 3.2% increase to $196.3 million. InvestingPro data shows the company maintains a "GREAT" financial health score of 3.26, with revenue growing 11.65% over the last twelve months. However, net investment income experienced a slight decline, falling to $9 million from $9.8 million in the previous year.

Financial Highlights

• Revenue: $208 million, up 2.2% year-over-year
• Earnings per share: $1.55, up from $0.61 in Q2 2024
• Net income: $48 million, compared to $18.9 million in Q2 2024
• Gross premiums earned: $353.6 million, up 1%
• Net premiums earned: $196.3 million, up 3.2%

Earnings vs. Forecast

Heritage Insurance’s EPS of $1.55 significantly exceeded the forecast of $0.98, resulting in a 58.16% positive surprise. However, the revenue of $208 million fell short of the expected $216.05 million, representing a negative surprise of 3.71%. This mixed performance highlights the company’s strong profitability but challenges in meeting revenue expectations.

Market Reaction

Despite the earnings beat, Heritage Insurance’s stock dropped 15% to $21.66 following the earnings release. This decline contrasts with the pre-market activity, where the stock saw a 3.88% increase, closing at $22.50. According to InvestingPro data, analyst price targets range from $28 to $30, suggesting potential upside. The stock has shown remarkable strength with a 198.76% return over the past year, though the recent movement reflects investor concerns over the revenue miss and potential future growth challenges.

Outlook & Guidance

Looking forward, Heritage Insurance anticipates a gradual increase in policies in force during the second half of 2025, with accelerated growth expected in 2026. The company plans to moderate rate increases across its geographic territories and continues to focus on rate adequacy and exposure management. Long-term EPS and revenue forecasts remain positive, with projected growth through 2026.

Executive Commentary

CEO Ernie Guerite remarked, "Our business is at an inflection point as we pivot to manage growth strategy," indicating a strategic shift towards sustainable expansion. CFO Kirk Lusk added, "Rate increases are gonna be moderated," suggesting a more balanced approach to pricing strategies.

Risks and Challenges

• Revenue growth may face headwinds due to economic uncertainties.
• The ongoing IT conversion to the Guidewire platform could pose operational risks.
• Increased competition from new carriers focusing on Citizens take-out programs.
• Potential impacts from legislative changes in key markets like Florida.
• Reinsurance cost increases could affect profitability.

Q&A

During the Q&A session, analysts focused on the company’s attritional loss trends, which are stabilizing, and the decrease in claim frequency over the past three years. Concerns were raised about the increase in claim severity, which has risen by 5.4% over the same period. Heritage Insurance expressed optimism about the reinsurance market for 2026, which could alleviate some financial pressures.

Full transcript - Heritage Insurance Holdings Inc (HRTG) Q2 2025:

Conference Operator: Good morning and welcome to the Heritage Insurance Holdings Second Quarter twenty twenty five Earnings Conference Call. Please note today’s event is being recorded. All participants will be in a listen only mode. After today’s presentation there will be an opportunity to ask questions. And at this time, I would like to turn the conference over to Kirk Lusk, Chief Financial Officer for the company.

Please go ahead.

Kirk Lusk, Chief Financial Officer, Heritage Insurance Holdings: 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 ks, earnings release and other SEC filings. With me on the call today is Ernie Guerite, our Chief Executive Officer. I will now turn the call over to Ernie.

Ernie Guerite, Chief Executive Officer, Heritage Insurance Holdings: Thank you, Kirk. Good morning, everyone, and thank you for joining us today. We delivered strong second quarter results, having achieved net income of $48,000,000 up from 18,900,000.0 second quarter a year ago and maintained the positive trajectory of our earnings. As we have been discussing on our earning calls over the last year, we continue to see the tangible results from the successful implementation of our strategic initiatives designed to generate positive and consistent shareholder returns by attaining rate adequacy, managing exposure, and enhancing our underwriting discipline. This has created a significant level of earnings power within Heritage, which has fully shown through this quarter.

As part of that strategy, we reunderwrote our personal lines book while taking needed rate increases to achieve adequate rates. This led to a steady contraction in our policies in force over the last four years of over 200,000 policies. During the same time frame, our in force premium has increased from approximately $1,100,000,000 to $1,400,000,000 and the diversity of our book has improved. In the second quarter, our policies in force decreased by just over 7,700 policies, which was the smallest decrease since we started the initiative in June 2021. As previously mentioned, we are at an inflection point in our business where we expect our personal lines policies in force to slowly increase through the second half of this year as our new business production continues to ramp up.

New business is up 46% over the 2024 and is at the highest level since the 2022. Looking to 2026, we expect growth to accelerate as our new business production is fully ramped up across all of our geographies and our exposure management initiatives are fully behind us. The catalyst has been achieving rate adequacy across the majority of our markets and correspondingly opening those areas up for new business. There are a few select areas that are still closed, but nearly all of our producing capacity is open for new business. While it takes time to open our territories and onboard agents, we are seeing good new business momentum across our regions in the Northeast, particularly in New York, as well as the Mid Atlantic where Virginia is seeing strong new business trends.

Florida is also a stand alone market for heritage, given the recent legislative reforms, which are having a positive impact on the economics of writing new, profitable business and where we have seen a market a marked decline in frivolous lawsuits. Looking forward, we see significant room for growth and expansions as we continue to build our market share across the Northeast, Mid Atlantic, Southeast, West, and Pacific regions. Additionally, we see opportunities to expand in new regions of the country as we deliver new products to our insureds over time. Taken together, this presents an open ended growth opportunity to Heritage and our shareholders. All that said, we will maintain our disciplined underwriting processes as we open new territories and embark on managed growth strategy, which also resulted in a lower net loss ratio this quarter.

As we grow, we are also continuing to invest in and enhance customer service, claims, and claims quality management, as well as technology resources. We are in our third year of an IT conversion to a Guidewire platform. Our conversion has been going well and is expected to be completed next year. Once we are fully on the Guidewire platform, we will be able to scale the business more efficiently as well as increase our speed of execution. Turning to reinsurance, we have maintained a stable indemnity based reinsurance program at manageable cost with an excellent panel of highly rated and collateralized reinsurers.

Overall, we increased the amount of limit that we purchased by $285,000,000 while our overall cost increased by less than $8,000,000 Looking forward, we expect the reinsurance market to see the positive impact of the legislative changes in Florida as Hurricane Milton’s claims mature through this year and into next year. This could have a favorable impact on reinsurance pricing in 2026. We also believe that the impact of this necessary legislation will be favorable to the consumer in terms of the cost of insurance. The strength of our results and momentum in our business can also be seen in our recent refinancing of our senior credit facilities, which Kurt will comment on. We had strong support from our banking partners and upsized our facility while simultaneously achieving more attractive terms given the demand, which exceeded our expectations.

As we look to the second half of the year, we also expect to build capital, which will not only position us for accelerating organic growth, but also to consider our capital allocation strategy. To conclude, our business is at an inflection point as we pivot to manage growth strategy, which will return our policies in force to moderate growth through the back half of this year before accelerating in 2026. We are excited with the many opportunities that we see to grow the value of our business. 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, all driven by our dedicated workforce. Kirk, over to you.

Kirk Lusk, Chief Financial Officer, Heritage Insurance Holdings: Thank you, Ernie, and good morning, everyone. Starting with our financial highlights, we reported net income of $48,000,000 or $1.55 per diluted share in the second quarter. This represents a sharp increase from the $18,900,000 or $0.61 per diluted share a year ago second quarter. The increase is primarily driven by decreases in losses and other operating expenses, and an increase in net premiums earned. Gross premiums earned rose to $353,600,000 up 1% from $350,100,000 in the prior year quarter, reflecting higher gross premiums written over the last twelve months from business growth and rating actions.

As we ramp up on recently opened geographies, we expect our growth to accelerate at a managed pace. Net premiums earned increased to $196,300,000 up 3.2% from one nine hundred and ninety point three million dollars in the prior year quarter, reflecting higher gross premiums earned as well as a reduction in ceded premiums from the prior year quarter. The reduction in ceded premiums was driven primarily by $10,000,000 reinstatement premiums for Hurricane Ian for the prior year quarter and which was partially offset by higher ceded premiums in 2025 on our net quota share reinsurance program. Our net investment income for the quarter was $9,000,000 an $800,000 decrease from the $9,800,000 in the prior year quarter, primarily driven by a lower interest rate environment for our sweep accounts and money market funds. We continue to manage our investment portfolio while maintaining a conservative, high quality investments with duration liability matched.

Our total revenues for the quarter were $2.00 $8,000,000 up 2.2% from $203,600,000 in the prior year quarter. This improvement was driven by higher net premiums earned. Our net loss ratio for the quarter improved 17.2 points to 38.5% as compared to 55.7 in the same quarter last year, reflecting significantly lower net losses at LAE coupled with higher net premiums earned. Net weather and catastrophe losses for the current year quarter were $12,500,000 a decrease of $7,200,000 from $19,700,000 in the prior year quarter. There were no catastrophe losses in the current quarter or prior year quarters.

The reduction in weather losses was coupled with a reduction in attritional losses. Our attritional losses have been trending favorably, which we believe is associated with the enhanced underwriting strategy over the last several years. Additionally, the quarter benefited from favorable reserve development compared to the prior year quarter. Favorable net loss development was $2,300,000 in the current year quarter compared to adverse development or $8,700,000 in the prior year quarter. Our net expense ratio for the quarter was 34.4%, a 2.4 improvement from 36.8% in the prior year quarter.

This was driven primarily by growth in net premiums earned, coupled with higher ceding commission income, which decreased the net policy acquisition costs. Higher ceding commission income was associated with both a large amount of premium ceded and a higher ceding commission rate, driven by favorable loss experience for the net quota share program. This offset a one half point increase in the net G and A expense ratio. The net combined ratio for the quarter was 72.9%, an improvement of 19.6 points from 92.5% in the prior year quarter, driven by a lower net loss ratio and lower net expense ratio as described. Turning to our balance sheet.

We ended the quarter with total assets of $2,500,000,000 and shareholders’ equity of $383,300,000 Our book value per share increased to $12.36 at 06/30/2025, up 30.1% from the 2024 and up 48.6% from the 2024. The increase from 12/31/2024 is primarily attributable to the net income for the year to date, as well as $11,100,000 net of tax benefit associated with a $14,600,000 reduction in unrealized losses on the company’s fixed income securities portfolio. The average duration of the fixed income portfolio is three point o four years as the company has extended duration from the prior year quarter to take advantage of higher yields further out on the yield curve while still maintaining a short duration, high quality portfolio. Turning to our senior credit facilities. We refinanced the facility on favorable terms, having upsized the facility to $200,000,000 from the previous $150,000,000 facility while extending the maturity to July 2030 from July 2026.

Additionally, our new facilities are at a lower cost and provide more flexibility than our previous facility. I would like to thank our bank partners who are supporting Heritage as we return to growth. Nonregulated cash at quarter end was $46,300,000. In addition, statutory capital at quarter end was $329,600,000, which is up $76,600,000 from the 2024. The increase in statutory surplus provides additional growth capacity as we open more territories for new business.

Looking ahead, we remain focused on executing our strategic initiatives aimed at driving long term shareholder value and providing our policyholders and agents with the service they deserve and expect. We believe our proactive approach to managing exposures, enhancing rate adequacy, and investing in technology and infrastructure will position us well for continued success. Thank you for your time today. Operator, we are now ready for questions.

Conference Operator: Thank you. We will now begin the question and answer session. And the first question will be from Mark Hughes with Truist. Please go ahead.

Mark Hughes, Analyst, Truist: Yeah, thank you. Good morning.

Ernie Guerite, Chief Executive Officer, Heritage Insurance Holdings: Hey, morning, Mark. Good morning.

Mark Hughes, Analyst, Truist: I wonder if you could talk about kind of the attritional loss trajectory as you’ve seen it develop over the last year and through the second quarter. If we look at your loss ratio, taking out the cats and other weather, A little bit of an uptick this quarter. I don’t know that we can read much into that, given all the other moving parts. But I’m just sort of curious, from an attritional loss perspective, where do we stand now? Is it still trending downward from your perspective?

Is it stabilized? Have we kind of achieved the benefits of some of these regulatory reforms in your underwriting actions? Or is there still potentially more to come? How would you describe it?

Kirk Lusk, Chief Financial Officer, Heritage Insurance Holdings: Yeah, I’d say it’s somewhat that stabilizing now. And again, I mean, we receive rate adequacy. And when you look at it, I mean, frequency has continued to be down. And then our severity is running at a relatively modest rate, which you would expect with inflation. But a lot of this has been frequency driven, and frequency has been down.

But I must admit, I think that probably is going to start leveling off. And so I think that we’re probably running into a point where we’re bringing into some stabilization.

Mark Hughes, Analyst, Truist: Yeah, I guess they should have started out saying about ’55 is a big quarter. And so stabilization at $1.55 would be pretty good. But I know you’re targeting growth. And on that point, how do you see the competition? There’s been some kind of public equity offering activity in Florida.

Obviously, have improved substantially. You’re opening up for growth. What are you finding in terms of agent enthusiasm, level of competition? Any anything that you’re seeing is as you’re going out to the market and looking for new business?

Ernie Guerite, Chief Executive Officer, Heritage Insurance Holdings: Yeah, what I’d start to say is the agents are enthusiastic that we’ve opened up. I think we’ve said we’ve been closed for quite a bit and now we’re about 90% open, 90%, 95% open in our geographic areas. As far as competition is concerned, we’ve always said we welcome responsible competition. I think everyone is aware that there are new carriers in the state, which is good for the public. But that being said, most of those carriers are focusing on the citizens take out, the depopulation program.

And we see that and still focusing on that at least for the next year.

Mark Hughes, Analyst, Truist: Yeah. How do you see your rates trending kind of the next for the balance of this year? And if you think about next year, I know you made some comments about you expect the reinsurance market to more fully factor the reform, and that’s positive for 2026 rates potentially. But how do you think the primary rates, either yours or if you want to broaden it up and say kind of across the state, across the state, and here I’m thinking Florida, but you can talk nationally as well. How you think that’ll trend?

Kirk Lusk, Chief Financial Officer, Heritage Insurance Holdings: Yeah, I think the trend there is going to be up in most geographies, although not to the extent it has been in the past, simply from the standpoint of with us starting to hit rate adequacy, we really don’t need the substantial rates to catch up. Would say, almost across the board, the regulators have been very good as far as us getting adequate rates. And now that that’s occurred, I mean, I think that the rate increases are gonna be moderated. There are a few areas here and there where we’re still needed to catch up a little bit. But I would say that even in those geographies that the discussions there had been very positive and we’re getting there very quickly.

So from that standpoint, I think it’s very positive. We do have a fair amount of rates still earning through the portfolio, obviously this year, into next year, but I do think it is gonna moderate.

Mark Hughes, Analyst, Truist: Yeah, then one more if I might. The Northeast, New York, I think Virginia, where you’re seeing policy growth. How has the loss experience been in those markets? If you see a little more growth oriented to the Northeast, what will that do for the overall loss ratio?

Kirk Lusk, Chief Financial Officer, Heritage Insurance Holdings: Yeah, actually, that will be positive from the perspective of that is an area where we’re still getting probably a little bit more rate than in the Southeast. So it’s a little bit of catch up in the Northeast, but we’re nearly there. I would say we recently got some rates approved in the Northeast, which are really going to kind of help that process quite a bit and accelerate it. So Northeast by getting a little bit more rate in Southeast, but that’s gonna help us into next year.

Mark Hughes, Analyst, Truist: Appreciate it. Thank you.

Ernie Guerite, Chief Executive Officer, Heritage Insurance Holdings: Thank you. Thanks, Mark.

Conference Operator: And our next question is from Carroll Chimel from Citizens. Please go ahead.

Carroll Chimel, Analyst, Citizens: Yes. Hi. Good morning, and congrats on the great quarter. Thank you. And my first question is regarding the catastrophe and weather losses.

I’m just curious if you can maybe compare it to the prior year’s quarter and maybe the quarter from two years ago. Are you seeing any change for that quarter? I know that quarter is a lot of Southeast convective storms historically, but can you maybe explain the difference between the past two years?

Kirk Lusk, Chief Financial Officer, Heritage Insurance Holdings: Yeah, well, so for example, year over year, our non cat weather for the quarter was down about $7,000,000 A lot of that we do think has to do with the underwriting of the portfolio where we do think we have better risks, newer roofs, and just the we’ve been inspecting. And so therefore, that perspective, we think it is a better performing book. So therefore, it is not as susceptible to some of the severe convective storms. I think that they have been a little bit lighter, but I also think that some of it has been just indicative of the underwriting performance of the portfolio.

Carroll Chimel, Analyst, Citizens: Great. Thank you. And then the second question is regarding the prior period development. Can you go into detail if this was from strengthening of the reserves from last year?

Kirk Lusk, Chief Financial Officer, Heritage Insurance Holdings: Yeah, some of it is from that strengthening from last year. And again, we did look at strengthening reserves last year, wanted to make sure that we were adequate at year end, that type stuff. You know, and again, we don’t mind, you know, slight movements here in our reserves, you know, up or down, that’s kind of expected. But, you know, we want to be as close. I think that, you know, when we look at the favorable development now for the quarter, I think that that is very positive and actually were favorable for the full year to date also.

So, yeah, that’s the trend we like to see. And again, I think some of it does have is reflective of the strengthening we took last year.

Carroll Chimel, Analyst, Citizens: Understood. Thank you very much.

Ernie Guerite, Chief Executive Officer, Heritage Insurance Holdings: Thank you. The

Conference Operator: next question is from Paul Newsome from Piper Sandler. Please go ahead.

Paul Newsome, Analyst, Piper Sandler: Good morning.

Ernie Guerite, Chief Executive Officer, Heritage Insurance Holdings: Morning, Good morning, Paul.

Paul Newsome, Analyst, Piper Sandler: Maybe you could just impact a little bit more some of the expected growth by region and where you think opportunistically this will get better from a policy perspective, Florida versus New York versus other states and you start with that.

Ernie Guerite, Chief Executive Officer, Heritage Insurance Holdings: Yeah, so let’s start with the Mid Atlantic, Virginia is a state we entered a couple years ago. That’s been performing pretty well. And we do see PIF growth coming from Virginia as well as we opened up New York. Again, we received some rate there that put us at rate adequacy. We’ve opened that up and the agents have really gone on to writing new business there.

So the Northeast will see growth in PIF as well as the Mid Atlantic in Florida. As we mentioned, we are reopened and we’re seeing the decline in the policy count there leveling off, but we that to be a positive number growing up here in the next quarter. Again, California is growing from a PIF count and why has also opened up again, again, since we’re rate adequate. So we do see the total PIF count coming from various sectors of the different regions that

Paul Newsome, Analyst, Piper Sandler: Great, that’s really helpful. Any thought on underlying property claim trends that just from a clean trend perspective, is it fairly stable at this point?

Kirk Lusk, Chief Financial Officer, Heritage Insurance Holdings: Yeah, I would say it definitely is. So looking at our three year frequency trend, if that’s good, down about 0.9%. So I mean, that’s almost pretty flat. Severity on a three year basis is up about 5.4. If you look at a five year basis, it’s up about 4.4.

So really, those are, I would say, numbers that are very solid and very manageable as opposed to some of the COVID years, which were clicking up rather substantially. So it’s really started to moderate and look very positive at this point.

Paul Newsome, Analyst, Piper Sandler: Thanks. Appreciate it.

Ernie Guerite, Chief Executive Officer, Heritage Insurance Holdings: Thank you, Paul. Thank you.

Conference Operator: And ladies and gentlemen, this concludes our question and answer session. I’d like to turn the conference back to Ernie Garate for any closing remarks.

Ernie Guerite, Chief Executive Officer, Heritage Insurance Holdings: We appreciate everybody who joined me in the call today and I hope everyone has a great day.

Conference Operator: And thank you, sir. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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