Higher catastrophe and non-catastrophe weather losses combined with a higher expense ratio dented the profitability of Heritage Insurance Holdings, Inc. in the second-quarter of 2019, while the firm continued to diversify away from the state of Florida.
When compared with the second-quarter of 2018, Heritage’s net income declined by a significant 70% to $0.7 million. Heritage states that this was mostly a result of a higher quarterly loss ratio driven by increased catastrophe and non-catastrophe weather losses.
Net current accident quarter weather losses reached $21.5 million and was mostly driven by events in Florida and North Carolina, and which includes $13.4 million of net current accident quarter catastrophe losses.
As a result, the property and casualty insurance holding company’s loss ratio hit 65.1% in Q2 2019 compared with 59.3% in Q2 2018, while the firm’s expense ratio also increased from 39.4% in Q2 2018 to 39.9% in Q2 2019.
As a result of the higher loss ratios, and despite the loss ratio being partly offset by $1.3 million of favourable prior year reserve development, Heritage’s combined ratio weakened to 105% in the quarter, compared with 98.7% in the second-quarter of 2018.
In recent times, Heritage has made significant efforts to diversify away from the highly competitive Florida marketplace, and especially the Tri-County area which experiences high levels of AOB abuse. The firm’s Q2 2019 results reveal a continuation of this trend.
Gross premiums written (GWP) hit $254.8 million in Q2 2019 which is down 3.3% on the same period last year, and which reflects an 11.9% exposure management driven decline in Florida, particularly in the Tri-County region. This management driven decline was somewhat offset by 8.4% growth outside Florida, with Non-Florida states accounting for 64% of all personal lines new business premium.
At $922.5 million, premiums-in-force in Q2 2019 declined by 0.9%, year-on-year, which was driven by a 16.3% decline in the Tri-County area of Florida, somewhat offset by 6.3% growth outside of Florida and 0.8% growth in non-Tri-County Florida.
The firm’s ongoing diversification outside of Florida resulted in a decline in gross premiums earned of 0.4% to $230 million. Heritage’s ceded premium ratio hit 50.4% in Q2 2019, which is down from the 51.9% recorded a year earlier and which is mostly a result of NBIC-related reinsurance synergies and a reduction in NBIC’s gross quota share reinsurance program.
The firm’s Chairman and Chief Executive Officer (CEO), Bruce Lucas, said: “Our second quarter operating results were very strong as we continue to diversify away from Florida, especially the Tri-County region which is highly prone to fraud. Non-Florida states contributed 64% of all personal lines new business premium in the quarter. Premium growth in these states has been rapidly accelerating and reached an all-time high in the quarter.
“Tri-County claims metrics continue to improve and our percentages of Tri-County claims and litigation have reached an all-time low. Year-over-year, we reduced our Tri-County total insured value (TIV) by $6.2 billion, but maintained relatively flat premiums-in-force, mainly because of our acceleration in growth outside of Florida.”
