Earnings call transcript: Heritage Insurance Q3 2025 beats EPS forecast

Heritage Insurance Holdings Inc. (HRTG) reported a robust third quarter for 2025, with earnings per share (EPS) of $1.63, significantly exceeding the forecast of $0.47. This remarkable earnings beat, coupled with net income growth and strategic expansion efforts, led to a 3.68% rise in premarket stock trading, reflecting positive investor sentiment. According to InvestingPro data, Heritage has maintained profitability over the last twelve months with a diluted EPS of $3.47, supporting analysts’ predictions that the company will remain profitable throughout 2025.

Key Takeaways

• Heritage Insurance’s EPS outperformed expectations by 246.81%.
• The stock rose by 3.68% in premarket trading following the earnings announcement.
• Net income for Q3 2025 increased to $50.4 million, up from $8.2 million in Q3 2024.
• The company is expanding its business across nearly all 16 operational states.
• New business premiums surged by 166% to $36 million.

Company Performance

Heritage Insurance demonstrated strong performance in Q3 2025, with net income reaching $50.4 million, a substantial increase from $8.2 million in the same period last year. The company’s strategic focus on expanding its geographic footprint and enhancing its product offerings contributed to this growth. Despite a slight decrease in the policy in force count, the reduction was the smallest since 2021, indicating stabilization.

Financial Highlights

• Revenue: $212.46 million, slightly below the forecast of $214.11 million.
• Earnings per share: $1.63, significantly up from $0.27 in the previous year.
• Gross premiums earned rose by 2.2% to $362 million.
• Net loss ratio improved to 38.3% from 65.4% in the prior year.

Earnings vs. Forecast

Heritage Insurance’s actual EPS of $1.63 surpassed the forecast of $0.47, resulting in a 246.81% surprise. This significant earnings beat highlights the company’s improved operational efficiency and strategic focus on growth. However, revenue fell slightly short of expectations, with a surprise of -0.77%.

Market Reaction

Following the earnings announcement, Heritage Insurance’s stock price increased by 3.68% in premarket trading, reaching $25.67. This positive movement reflects investor confidence in the company’s ability to sustain growth and profitability. The stock’s rise brings it closer to its 52-week high of $29.1.

Outlook & Guidance

Looking ahead, Heritage Insurance is optimistic about future growth, expecting full-year policy growth in 2026 and potential new premiums of $225-$250 million. The company anticipates improvements in reinsurance pricing and plans to focus on capital allocation priorities, including growth, share buybacks, and potential dividends.

Executive Commentary

CEO Ernie Garateix expressed confidence in the company’s trajectory, stating, "We are on a firm path to deliver full-year policy growth in 2026." He also highlighted the company’s momentum and earnings power, noting, "Our business continues to gain momentum, and the earnings power of the company is building."

Risks and Challenges

• Slight revenue miss could impact future growth projections.
• Competitive market conditions in the commercial residential sector.
• Potential rate decreases in 2026 may affect profitability.
• Ongoing need to maintain strong relationships with independent agents.
• Economic uncertainties and litigation risks, particularly in Florida.

Q&A

During the earnings call, analysts inquired about the geographic distribution of new business, with $17 million from Florida and $19 million from other states. The company also addressed its growing momentum in Virginia, Hawaii, New York, and California, and discussed favorable loss development of $5 million due to previous reserve strengthening.

Full transcript - Heritage Insurance Holdings Inc (HRTG) Q3 2025:

Conference Operator: Good morning and welcome to the Heritage Insurance Holdings third quarter 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.

Kirk Lusk, Chief Financial Officer, Heritage Insurance Holdings: Good morning and thank you for joining us today. We invite you to visit the investor 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 Garateix, our Chief Executive Officer. I will now turn the call over to Ernie.

Ernie Garateix, Chief Executive Officer, Heritage Insurance Holdings: Thank you, Kirk. Good morning, everyone, and thank you for joining us today. We delivered strong third quarter results, having achieved net income of $50.4 million. Up significantly from a year ago and maintaining the positive trajectory of our earnings. As Kirk and I have been discussing on our earnings calls over the last year, we continue to see tangible results from the successful implementation of our strategic initiatives, which were designed to generate positive and consistent shareholder returns by attaining and maintaining rate adequacy, managing exposure, enhancing our underwriting discipline, and improving claims and customer service levels. This has created a significant amount of earnings power within Heritage, which continues to show through. As part of that strategy, we re-underwrote our personal lines book while taking needed rate increases to achieve adequate rates.

This has led to a steady contraction in our policies in force over the last four years, while our in force premium increased from approximately $1.1 billion to an all-time record in the third quarter of $1.44 billion. At the same time, we improved both the quality and the diversification of our book of business. Looking out over the next six months, we expect our personal lines policy count to return to growth, as we have now opened nearly all of our geographies to new business as compared to only 30% a year ago. We are already seeing our new business production ramp up, with new business premium written for the third quarter of $36 million, representing an increase of 166% as compared to $13.7 million of new business written in the third quarter of last year.

The decline in our policy count continues to moderate, having decreased by 6,800 policies in the third quarter as compared to a decrease of over 19,000 policies in the third quarter of 2024. In fact, our third quarter PIF count reduction was the smallest decrease that we have experienced since we deployed these strategic initiatives in June of 2021. While it takes time to open our territories, we are seeing good new business momentum continue across our regions. Based upon these factors, I believe that we are on a firm path to deliver full-year policy growth in 2026. Importantly, we have long-standing relationships with agents and brokers across our geographies that we have maintained over the last four years, despite slowing new business growth and re-underwriting our book of personal lines business.

In the Northeast and portions of the Mid-Atlantic, we predominantly produce business through Narragansett Bay Insurance Company, domiciled in and operated out of Rhode Island. Over the years, we have built a successful homeowners insurance business, which has expanded across the coastal regions of the Northeast and Mid-Atlantic. The company has strong relationships with independent agents based upon a trusted brand. Likewise, Zephyr Insurance operates in and serves the Hawaiian market. Although Zephyr initially focused exclusively on Hawaiian hurricane wind risk, we subsequently expanded Zephyr’s product offering to meet the needs of our customers and the overall Hawaiian market. Our organization benefits from the agility and the rapid market responsiveness typical of a regional enterprise, while also leveraging the economies of scale found in larger super regional companies.

We have consolidated many functions to gain efficiency but retain the underwriting, marketing, and customer service functions in each region to better address the unique needs of each market. Every region has its own unique dynamics, and operating the business locally allows us to quickly adapt to changing conditions as well as provide outstanding customer service to our policyholders and agent partners. As we grow, our robust infrastructure allows us to write new personal lines business without adding significant administrative expense. We understand each of our markets and have built relationships with hundreds of master agencies, which represent thousands of agents throughout our geographic footprint. Our long-standing agency partners have expressed a willingness and desire to grow with us, which in turn provides confidence in our outlook for improved growth in the year ahead. We also remain focused on making decisions based on our data and analytics.

This has been the cornerstone of our disciplined underwriting process across all of our geographies, which we will maintain as we grow and which contributed to the lower net loss ratio this quarter. As we grow, we will maintain our disciplined underwriting processes as well as rate adequacy and managing exposures. An example of our disciplined approach can be seen in the commercial residential business, which we reduced in the third quarter due to more competitive market conditions. I believe this further demonstrates the discipline of our management team. Fortunately, we have ample room to grow our personal lines business and can choose to be selective across the 16 states where we do business. We are also exploring expansion opportunities into new regions of the country as well as the delivery of new products to our existing markets.

We have a long runway ahead of profitable growth of our business and deliver value to our shareholders. Reinsurance is 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. Over the course of the third quarter, we continue to meet with our reinsurance partners who continue to support our growth and from whom we anticipate will offer incremental capacity as we look to our 6-1 renewal next year. Additionally, we are seeing the benefits of tort reform as industry loss expectations for Hurricane Milton have been steadily coming down, largely due to reduced litigation, which our reinsurers should begin seeing in the coming months.

Given the improved litigation environment in Florida, the lack of reinsured losses, and the capacity entering the reinsurance market, we are optimistic that reinsurance pricing will continue to improve looking ahead 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. To conclude, our business continues to gain momentum, and the earnings power of the company is building. We are also growing capital, which will support our managed growth strategy as we expect to begin to deliver policy count growth in the quarters ahead. We are also now in a capital position to review our capital allocation strategy and believe our shares are trading below interesting value and do not reflect the many opportunities that we have to further grow the company.

As a result, we restarted our share repurchase program in the third quarter, having repurchased 106,000 shares for a total cost of $2.3 million. I would also like to reiterate our dedication in 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. Kirk?

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 $50.4 million, or $1.63 per diluted share in the third quarter, which compares very favorably to the $8.2 million of net income, or $0.27 per diluted share that we reported in the third quarter last year. The increase was primarily driven by a significant reduction in losses and loss adjustment expenses combined with a decrease in other operating expenses. For the nine months ended September 30th, we reported net income of $129 million, or $4.17 per diluted share, which is a substantial increase from the $41 million of net income, or $1.35 per diluted share that we reported for the first nine months of 2024.

Gross premiums earned rose to $362 million, up 2.2% from $354.2 million in the prior year quarter, reflecting rate actions that we have taken combined with organic growth in selected geographies as we open more regions for new business. This was partially offset by a decline in commercial residential business due to competitive market conditions. As Ernie touched on, we expect our growth to accelerate at a managed pace through 2026 as we ramp our new business efforts across our recently opened geographies. Net premiums earned were $195.1 million, down 1.9% from $198.8 million, resulting from increased ceded premiums. The increase in ceded premiums was driven primarily by a $4 million reinstatement premium for Hurricane Ian and an increase in the Northeast quota share program as written premiums from that program grew from the prior year quarter.

The result was an increase in ceded premium ratio to 46.1%, up 2.2 percentage points from 43.9% in the previous year third quarter. Our net investment income for the quarter was $9.7 million, relatively flat due to a higher portfolio value offset by a lower interest rate environment. We continue to manage our investment portfolio while maintaining a conservative portfolio with high-quality investments that are duration liability matched. Our total revenues for the quarter were $212.5 million, relatively unchanged from our prior year quarter. As discussed, we expect our revenues to return to growth through 2026 as we ramp our new business efforts. Our net loss ratio for the quarter improved 27.1 percentage points to 38.3% as compared to 65.4% in the same quarter last year, reflecting significantly lower net loss and LEE.

Net weather losses for the current year quarter were $13.8 million, a decrease of $49.2 million from $63 million in the prior year quarter. There were no catastrophe losses in the current quarter as compared to $48.7 million in the prior year quarter. The reduction in weather losses was coupled with favorable reserve development as compared to the prior year. Our attritional losses continue to remain fairly stable, as we believe is associated with the enhanced underwriting strategy over the last several years. Additionally, favorable net loss development was $5 million in the third quarter compared to adverse development of $6.3 million in the prior year quarter. Our net expense ratio for the quarter was 34.6%, a 60 basis point improvement from 35.2% in the prior year quarter, driven primarily by a decrease in policy acquisition costs.

The reduction in policy acquisition costs was driven primarily by higher ceded commission income associated with both a larger amount of ceded premium under the net quota share program and a higher ceding commission rate due to favorable loss experience for that program. This resulted in a 1.2% reduction in policy acquisition costs, which was partially offset by a 60 basis point increase in the net general and administrative expense ratio. The net combined ratio for the quarter was 72.9%, an improvement of 19.6 points from 100.6% in the prior year quarter, driven primarily by the lower net loss ratio as well as the lower net expense ratio just highlighted. Turning to our balance sheet, we ended the quarter with total assets of $2.4 billion and shareholders’ equity of $437.3 million. Our book value per share increased to $14.15 at September 30th, 2025.

Up 49% from the fourth quarter of 2024 and up 56% from the third quarter of 2024. The increase from December 31, 2024, is primarily attributable to year-to-date net income as well as a $15.7 million net of tax benefit associated with a reduction in unrealized losses. The unrealized losses are related to a decline in interest rates that occurred through the third quarter. The average duration of our fixed income portfolio is 3.13 years as the company has extended duration from the prior year quarter to take advantage of higher yields further out on the yield curve by still maintaining a short duration, high credit quality portfolio. Non-regulated cash at quarter-end was $50.1 million. In addition, combined statutory surplus at our insurance companies’ affiliates at quarter-end was $352.2 million, which is up $93.4 million from the third quarter of 2024.

The increase in statutory surplus provides for additional growth capacity as we open territories to get up to full capacity. 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 that our diversified portfolio and distribution capabilities, along with our overall proactive management approach to exposures, rate adequacy, and investing in technology, will position us well for continued success. Thank you for your time today. Operator, we are now ready for questions.

Conference Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question is from Mark Hughes with Truist. Please go ahead.

Mark Hughes, Analyst, Truist: Yeah. Thank you. Good morning, Ernie. Good morning, Kirk.

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

Mark Hughes, Analyst, Truist: Good morning, Mark.

Ernie Garateix, Chief Executive Officer, Heritage Insurance Holdings: The growth prospects, you talk about the PIF growth in 2026. How do you evaluate the opportunity in Florida versus outside of Florida? Sure. So there’s still plenty of opportunity for us in Florida. If you kind of go back to a couple of years, we de-risked a bit in Florida, especially in some of the Tri-County areas. So there’s plenty of runway for us in Florida. We understand there’s more new markets in Florida, but our name has still been predominant with the agents, and that’s why we talked quite a bit about our agency relationships, which remain strong. The agents have been—we’ve been working with the agents. They have reached out to us about continuing to write. As I mentioned on the call there, $30-plus million of new business premium is something that is only gaining more momentum in Florida.

Mark Hughes, Analyst, Truist: Okay. Of that new business momentum, I think you talked about $36 million. How much of that was Florida?

Ernie Garateix, Chief Executive Officer, Heritage Insurance Holdings: We have that number here.

Mark Hughes, Analyst, Truist: Yeah. I’ll get that for you. One second.

Ernie Garateix, Chief Executive Officer, Heritage Insurance Holdings: In the meantime, I’ll ask. How do we think about the pricing or competitive environment in Florida? It looks like commercial property is really a tremendous amount of pressure. I know in homeowners, the pricing cycle is a whole lot slower. What’s your current anticipation in terms of pricing? I think you’ve talked about filing for maybe low, mid-single-digit rate decreases in 2026. Is that still a fair assessment, and is that going to? Yeah. That’s still a fair assessment, right? We have a current filing pending with the OIR for a rate decrease, and the plan would be as well in 2026. We’ve also planned for a single-digit rate decrease. Regarding commercial, you’re right, there is more pressure, but I also remind people where the beginning point is when you’re talking about CRs in the 70s.

Yeah, they have pushed up slightly to 80, but an 80 CR is still very profitable in the commercial lines arena.

Mark Hughes, Analyst, Truist: Yeah. About $17 million of that new business was Florida.

Ernie Garateix, Chief Executive Officer, Heritage Insurance Holdings: Okay. Kind of consistent with your current mix. Yep.

Mark Hughes, Analyst, Truist: Seeded premiums. In absolute dollars, is this a good starting point when we think about the fourth quarter of $166 million, $167?

Ernie Garateix, Chief Executive Officer, Heritage Insurance Holdings: Yeah. It’s probably going to be a little high. We had about a $4 million one-time adjustment in there due to reinstatement premium. Yeah, I think if you look at backing off some of that, then you’re going to be about where the number needs to be.

Mark Hughes, Analyst, Truist: Low 160s?

Ernie Garateix, Chief Executive Officer, Heritage Insurance Holdings: Yeah.

Mark Hughes, Analyst, Truist: Is it reinstatement premium from Ian?

Ernie Garateix, Chief Executive Officer, Heritage Insurance Holdings: Yeah. Ian and Milton.

Mark Hughes, Analyst, Truist: Okay.

Ernie Garateix, Chief Executive Officer, Heritage Insurance Holdings: Yeah. It was Ian. Correct.

Mark Hughes, Analyst, Truist: Okay. So it shows up a couple of years later?

Ernie Garateix, Chief Executive Officer, Heritage Insurance Holdings: Yes.

Mark Hughes, Analyst, Truist: Okay. How much growth can you support with the surplus that you’ve got, the $352 million, up pretty substantially? Will that be good enough for kind of what you’re seeing in 2026?

Ernie Garateix, Chief Executive Officer, Heritage Insurance Holdings: Yeah. I think if you look at kind of where our change in statutory surplus is for the year, it’s up about $66 million. If you assume that is a 3 to 1 ratio, that type of stuff, that gives us over $180 million of net earned premium to write. Again, that’s net written, so you actually figure that number is going to be a little higher because of the ceded. Therefore, I mean, you’re looking at roughly well over $225-$250 million of premium that we could write based upon that increase in surplus. Again, that doesn’t include any improvements in that number in the fourth quarter.

Mark Hughes, Analyst, Truist: Yeah. Yeah. Which, I guess, leads to the question with your level of earnings. Your strong capital position already. I think you talked about the $2 million in buybacks in the quarter, but it seems like there’s going to be a lot of excess capital floating around. In pretty short order. What are the priorities there? Is that something you could act sooner rather than later on maybe further buybacks?

Ernie Garateix, Chief Executive Officer, Heritage Insurance Holdings: One of the things we also mentioned is that the board did authorize an additional $25 million worth of stock buybacks. I think if you look at our capital priorities, it’s one, it’s using capital for growth because of the ROEs we’re able to generate. Second of all, we do look at where our stock is trading. We still think it’s undervalued. Therefore, stock buybacks is our second priority, and then dividends after that with the ROEs if we can’t generate what we think are substantial ROEs. That’s kind of like the priority of our capital utilization.

Mark Hughes, Analyst, Truist: Yeah. Yeah. I hear you. Yeah. Your net income relative to your market cap, relative to your capital requirements, is pretty striking. When you put all that together.

Ernie Garateix, Chief Executive Officer, Heritage Insurance Holdings: Yes. Yeah. It is.

Mark Hughes, Analyst, Truist: Okay. All right. Thank you for all the answers. Appreciate it.

Ernie Garateix, Chief Executive Officer, Heritage Insurance Holdings: Hey. Thank you, Mark.

Kirk Lusk, Chief Financial Officer, Heritage Insurance Holdings: Thank you, Mark.

Conference Operator: The next question is from Carol Chamil with Citizens. Please go ahead.

Carol Chamil, Analyst, Citizens: Good morning. Thank you. I just have a follow-up question to Mark’s question about the new business. So if $17 million of the $36 million was Florida, roughly $19 million was outside of Florida, can you just maybe comment on where you’re seeing the most momentum of those territories outside of Florida?

Ernie Garateix, Chief Executive Officer, Heritage Insurance Holdings: Yeah. Virginia is a new growing state for us, as well as growth in Hawaii. New York is also ramping up. The one reminder there is we did take additional 9%, which made us rate adequate in New York. That started mid-year. That is only beginning, and we’ll kind of roll into 2026. Additional states, as California on an E&S basis, also is another positive momentum growing for us.

Carol Chamil, Analyst, Citizens: Okay. Great. Thank you. Just a quick question on this favorable development of $5 million. Is this still due to the reserve strengthening of last year?

Ernie Garateix, Chief Executive Officer, Heritage Insurance Holdings: Yeah. It has partially to do with that. It just also has to do with just kind of what we’re seeing in the underlying portfolio. Again, we think that we’re adequately reserved for sure. Yeah, it does have to do a little bit with that where we did take a hard look at last year.

Carol Chamil, Analyst, Citizens: All right. Thank you very much.

Ernie Garateix, Chief Executive Officer, Heritage Insurance Holdings: All right. Thank you. Thank you.

Conference Operator: At this time, there are no further questions. So this concludes our question and answer session. I would like to turn the conference back over to Ernie Garateix for any closing remarks.

Ernie Garateix, Chief Executive Officer, Heritage Insurance Holdings: We’d like to thank everyone for joining the call and thank especially our workforce and our employees for all their hard work this year.

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

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