Heritage Insurance has reported a Q4 2022 net income of $12.5 million compared to a net loss of $49.2 million in the same quarter of 2021, primarily driven by a $60.5 million non-cash, substantially non-deductible, goodwill impairment charge taken in Q4 of 2021.
According to Heritage, the goodwill impairment charge was recorded following the firm’s annual valuation review and principally stemmed from its common stock valuation and prevailing valuation multiples in the property insurance market.
The firm also reduced its valuation allowance between Q3 and Q4 by $4.3 million, favourably impacting the effective tax rate for the quarter.
The valuation allowance relates to certain tax elections made by Osprey Re, Heritage’s captive reinsurer domiciled in Bermuda.
Meanwhile, gross premiums written were up 15.5% to $322.1 million from $278.8 million in Q4 of 2021, as intentional exposure management and rate adequacy efforts improved the average premium across the book of business, says Heritage.
The firm adds that this amount reflects a 26.4% increase in Florida premium driven by higher rates for all business, organic growth in the CRES product, and expansion of its surplus lines product as well as a 7.2% rate-related increase in other states with a policy count reduction of 7.2% across the book.
Heritage also disclosed Q4 net earned premiums of $166.2 million, an increase of 3.9% from $159.9 million in the prior year’s quarter.
The firm’s Q4 2022 net loss ratio of 62.4% increased by 0.5 points from 61.9% in Q4 of 2021.
Heritage states that this increase primarily stems from higher ceded premium, higher attritional losses, and $2.2 million of adverse prior-year development compared to $0.5 million of favourable prior-year development in Q4 of 2021.
However, this was partly offset by lower weather losses and higher loss mitigation income suggests the firm.
Heritage’s net combined ratio of 96.1% rose 2.9 points from 93.2% in Q4 of 2021, primarily driven by the higher ceded premium ratio.
Heritage CEO, Ernie Garateix, commented, “Our fourth quarter metrics continue to demonstrate our focus on strategic profitability initiatives. The strategy we’ve been executing includes tightening underwriting, constraining new business in certain geographies, maintaining a balanced portfolio, optimizing our allocation of capital, and ensuring rate adequacy.
“We are encouraged by our improving metrics and the long-term positive impact we believe they will have on our underwriting income.
“We believe this discipline also better positions Heritage for the renewal of its reinsurance program in June. Additionally, I am encouraged by the recently passed Florida Senate Bill 2A, during the December special session of the Florida legislature.
“I am cautiously optimistic that it will accomplish the goals of the legislature, our Governor, and State CFO to stabilize the Florida property insurance market and curtail abusive claims practices. Our strategy will remain unchanged until we see the impacts of the legislative changes in our results.”
