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Heritage posts Q2 net loss on $91m goodwill impairment charge

5th August 2022 - Author: Luke Gallin

Super-regional property and casualty insurance holding company, Heritage Insurance Holdings, has seen its net loss widen in the second-quarter of 2022, driven by a net $90.8 million non-cash goodwill impairment charge.

Heritage Insurance LogoFor Q2 2022, Heritage has posted a net loss of $87.9 million compared with a net loss of $4 million in the prior year quarter.

The non-cash goodwill impairment charge, which was recorded following an interim valuation review, is the result of disruption in equity markets, notably for P&C insurers as a result of recent weather-related catastrophe events, higher loss ratios for property insurers in Heritage’s markets, and trading of its stock below book value, explains the carrier.

While the firm’s net loss increased year-on-year, gross premiums written jumped 8.2% to $365.3 million, which reflects a 4.6% rate related rise in Florida and 12.1% growth in other states. “Rate increases continued to meaningfully benefit written premiums throughout the book of business,” explains Heritage.

Premiums in-force reached $1.2 billion in the second quarter, up 3.4% on the prior year period, as policies-in-force fell 7.3%, attributable to variance stemming from rate increases and a small policy-in-force increase outside of the state of Florida.

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In terms of gross premiums earned, Heritage has reported growth of 3.7% to $296.2 million in Q2 2022, which it says reflects higher gross premiums written over the last year.

During the second-quarter, Heritage explains that its gross premiums earned growth outpaced ceded premium growth, which led to a 2.1 percentage point decline in the ceded premium ratio, year-on-year, to 46.6%.

“While the higher cost of the June 2022 catastrophe excess of loss program is reflected in these results, the second quarter of 2021 included significant reinstatement premium on the severe convective storm reinsurance contract, which drove up the ceded premium ratio,” says Heritage.

At the same time, the company’s net loss ratio has come down from 68.8% in Q2 2021 to 64.1% in Q2 2022, primarily driven by a lower attritional loss ratio, partially offset by less favourable loss development.

In fact, Heritage has reported net current accident year weather losses of $38.1 million for Q2 2022 compared with $35.5 million a year earlier. For this year, the figure includes $32.1 million of net current accident quarter catastrophe losses, and $6 million of other weather losses.

The Q2 2022 expense ratio, at 35.3%, fell by 1.1 percentage point when compared with the prior year quarter.

Overall, Heritage has reported a combined ratio of 99.4% for the second-quarter of 2022, which is an improvement from the 105.2% reported a year earlier.

Ernie Garateix, the firm’s Chief Executive Officer (CEO), commented: “Our underwriting profit for the quarter and nearly 6-point reduction in our combined ratio demonstrate that our focus on profitability, exposure management and rate adequacy are having the desired impact.

“Our improved metrics are significant in comparison to the prior year quarter and we expect these improvements to continue each successive quarter. Additionally, I’m pleased with the outcome of our catastrophe reinsurance program which incepted June 1st. Heritage secured appropriate levels of reinsurance, we did not use the new Florida Reinsurance to Assist Policyholders program, and our program included deployment of Citrus Re, which brings in additional collateralized reinsurance through the capital markets.

“We are cautiously optimistic that the actions taken by the Florida legislature will have a positive impact on our results and the challenging claims environment, but also believe that more legislative action needs to be taken to improve the health of the Florida property insurance market.”

In terms of its exposure to the troubled Florida marketplace, Heritage notes that it’s increasingly looking to diversify outside the state and into Northeast, Mid-Atlantic, West and Pacific regions. This actually resulted in reductions in Florida of 18.9% in terms of policies-in-force and a 14.9% reduction of total insured value.

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