Property and casualty insurance holding company, Heritage Insurance Holdings, Inc., has reported a rise in net income for the second-quarter of 2020 to $4.1 million, driven by an increase in premiums earned and lower loss and expense ratios.
The $4.1 million of net income represents a jump of more than 485% from the $0.7 million of net income the firm recorded in Q2 2019.
Heritage attributes the boost in its performance to a 13.1% rise in net premiums earned to $114.1 million. Gross premiums written increased by 14% to $290.4 million, gross premiums earned by 5.1% to $241.8 million, while ceded premiums fell by 2.7% to $112.7 million.
Alongside the improvement in net premiums earned, Heritage says that its net income was supported by a 4% reduction in the loss ratio to 61.1%, and a 1% reduction in its expense ratio in the quarter to 38.9%, and also a lower effective tax rate, somewhat offset by lower investment gains.
Included in the loss ratio is net current accident quarter weather losses of $26.8 million, including $17.6 million of net current accident quarter catastrophe losses. This is up on last year when the firm’s net current accident quarter weather losses totalled $21.5 million, including cat losses of $13.4 million.
Despite the elevated weather losses in the period, Heritage saw its loss ratio decline as a result of higher favourable prior year reserve development and a lower ceded premium ratio.
Discussing the reduced ceded premium ratio of 46.6%, Heritage says that this was mainly driven by a reduction in the cost of its 2019-2020 cat reinsurance program and a lower level of overall quota share cover, in part offset by the higher cost of its 2020-2021 cat reinsurance program amid a hardening market environment.
In addition, the firm also booked $5 million of favourable prior year reserve development in Q2 2020, which means the company has now recorded favourable prior year reserve development for eight quarters in a row.
Overall, Heritage has reported a combined ratio of 100% for the second-quarter of 2020, against a combined ratio of 105% in the same period in 2019, driven by the above-mention reduction in both the loss and expense ratios.
Bruce Lucas, Heritage’s Chairman and Chief Executive Officer (CEO), commented: “The growth in our organic gross premiums written has accelerated every quarter since returning to positive growth in the third quarter of 2019 and we achieved double digit organic growth in the second quarter of 2020. Our strong agent relationships and auto carrier partnerships are paying off, as demonstrated in our numbers this quarter.
“More importantly, given our de-risking efforts in prior years, we’re able to grow profitably, a testament to our underwriting discipline.”
Heritage announced in the first-quarter of the year that it had seen virtually no impact from the ongoing COVID-19 pandemic, and the firm’s Q2 results announcement offers the same message.
“During the first half of 2020, we saw virtually no impact to our business,” explains the firm, adding that while it will continue to monitor both the short and long-term impacts of the pandemic, it does not expect to see a material impact to its business going forward.
