investor presentation - investors – heritage insurance€¦ · hrtg ipo (nyse): $11/share...

Investor Presentation(NYSE: HRTG)

Fourth Quarter 2018

SAFE HARBORStatements in this presentation that are not historical facts are forward‐looking statements that are subject to certain risks and uncertainties that couldcause actual events and results to differ materially from those discussed herein. Without limiting the generality of the foregoing, words such as “may,”“will,” “expect,” “believe,” “anticipate,” “approximate,” “plan,” “intend,” “could,” “would,” “estimate,” or similar expressions are intended to identifyforward‐looking statements. Forward looking statements include, but are not limited to, statements about the Company’s expectations with regard tonet investment income, underwriting margins and capital to support future premium growth and expansion initiatives. These statements are notguarantees of future performance and involve risks, uncertainties and assumptions that could cause the Company’s actual results to differ materiallyfrom those expressed or implied by such forward‐looking statements. Such risks and uncertainties include, among other things, risks related to thepossibility that actual losses may exceed reserves; the concentration of the Company’s business in coastal states, which could be impacted by hurricanelosses or other significant weather‐related events such as northeastern winter storms; the Company’s exposure to catastrophic weather events;increased costs of reinsurance, non‐availability of reinsurance, and non‐collectability of reinsurance; the Company’s failure to effectively manage itsgrowth and integrate acquired companies; increased competition, competitive pressures, and market conditions; the Company’s failure to accuratelyprice the risks it underwrites; the inherent uncertainty of the Company’s models and reliance on such models as a tool to evaluate risk; the failure of theCompany’s claims department to effectively manage or remediate claims; low renewal rates and failure of such renewals to meet the Company’sexpectations; the Company’s failure to execute its diversification strategy; failure of H the Company’s information technology systems and unsuccessfuldevelopment and implementation of new technologies; a lack of redundancy in the Company’s operations; the Company’s failure to attract and retainqualified employees and independent agents or loss of key personnel; the Company’s inability to generate investment income; the Company’s inability tomaintain its financial stability rating; effects of emerging claim and coverage issues relating to legal, judicial, environmental and social conditions; thefailure of the Company’s risk mitigation strategies or loss limitation methods; changes in regulations and the Company’s failure to meet increasedregulatory requirements; and other matters described from time to time by the Company in its filings with the Securities and Exchange Commission,including, but not limited to, those set forth in its Annual Report on Form 10‐K for the year ended December 31, 2017 and subsequent Quarterly Reportson Form 10‐Q (or such other reports that may be filed with the SEC). The Company undertakes no obligations to update, change or revise any forward‐looking statement, whether as a result of new information, additional or subsequent developments or otherwise, except as required by law.Non‐GAAP Financial Information: This presentation includes financial measures that are not presented in accordance with generally acceptedaccounting principles in the U.S. (GAAP). A reconciliation of these non‐GAAP financial measures to the most directly comparable GAAP financial measurecan be found in the Appendix to this presentation on slide 24.Note: This presentation also contains information regarding securities analyst consensus and other financial professionals’ estimates of certain financialitems for Heritage and other industry participants derived from reports of FactSet Research Systems (“FactSet”). These estimates are projections madeby securities analysts and other financial professionals who cover Heritage and other industry participants. Any opinions, forecasts, estimates,projections or predictions regarding Heritage’s performance made by such third parties (and, therefore, such estimates) are theirs alone and do notrepresent the opinions, forecasts, estimates, projections or predictions of Heritage or its management. By providing these estimates, Heritage does notimply its adoption of, endorsement of or concurrence with such information, conclusions or recommendations. Heritage assumes no liability for theaccuracy of such estimates and undertakes no liability to update or revise such estimates based on new information or otherwise.

Fourth Quarter 2018 Investor Presentation 2

TABLE OF CONTENTS

Company snapshot……………………………………………………………………………………………………………………………………………………………………….Timeline of events..……………………………………………………………………………………………………………………..……………………………………………….Management team.………………………………………………………………………………………………………………………………………………………………………Corporate structure..………………………………………………………………………………………………………………………………………………….……………......Book of business……………………………………………………………………………………………………………………………………..……………………………………Policies‐in‐force metrics……………………………………………………………………………………………………………………………………………………………….Distribution…………………………………………………………………………………………………………………………………………………………………………..........Reinsurance program……………………………………………………………………………………………………………………………………………………………………Investments……………………………………………………………………………………………………………………………………………………………………….……..….

3

INVESTMENT CONSIDERATIONS

COMPANY OVERVIEW

Note 1: all pricing data as of the close on 3/27/2019 unless otherwise notedNote 2: all non‐market data as of 12/31/2018 unless otherwise noted

Fourth Quarter 2018 Investor Presentation

Value proposition………………………………………………………………………………………………………………………………………………………………….........Underwriting performance, capital management and underwriting leverage…………………………….………………………………………………...Reinsurance retention……..……………………………………………………………………………………………………………………………………………………………Diversification strategy…………………………....…………………………………………………………………………………………………………………………...……..Book value per share growth, ROEs and valuation………………………………………………………………………………………………………………………..

Appendix: Reconciliation of GAAP and non‐GAAP measures………………………………………………………………………………………………….……..Investor relations contact details………………..……………………………………………………………………………………………………..………………….………

56789

10111213

1516‐17

1819‐2021‐23

2425

Company overviewHeritage Insurance

COMPANY SNAPSHOT

Active personal residential insurer in 12 coastal USstates & licensed in 3 additional states 6th largest homeowners insurer in FL and 22nd

nationwide

Actively write commercial residential insurance in FL 2nd largest admitted commercial residential insurer in FL

and 7th largest commercial multiple peril (CMP) insurerin the state

Vertically integrated structure with in‐houseunderwriting, actuarial, customer service, claimsprocessing and adjusting functions (3rd parties used asneeded)

447 employees (438 full‐time)

Founded in 2012, followed by IPO in 2014

Headquartered in Clearwater, FL

What we do: Heritage Insurance Holdings, Inc. is a Florida‐based holding company that primarily provides personal and commercial residential insurance in coastal US states.

NYSE: HRTG

Market Cap/Stock Price: $450 million/$14.82

Annual Dividend/Yield Per Share: $0.24/1.6%

Remaining share repurchase authorization: $50 million

Total Equity/BVPS: $425.3 million/$14.43

Total Assets: $1.8 billion

In‐Force Gross Premiums: $923.7 million

Financial Strength Ratings:Demotech: HPCIC (A), NBIC (A), ZIC (A Prime)Kroll: HPCIC (BBB+), NBIC (A‐), ZIC (BBB+)

Investment grade issuer rating (Kroll: “BBB‐”)

5

QUICK FACTS MARKET/FINANCIAL DATA


THE HERITAGE STORYFounded in 2012, Heritage has quickly grown into a leading coastal US P&C insurer.

6

2012 Company inception Started writing voluntary

personal residential business in FL

Participated in first personal residential assumption from FL Citizens

2013 Formed Contractors’ Alliance

Network (CAN) in FL, Heritage’s vendor managed repair program

Formed Osprey, a captive reinsurer.

Retroactive quota share reinsurance agreement with Citizens

2014 HRTG IPO (NYSE): $11/share Sunshine State policy assumption Launched commercial residential

division and participated in first commercial residential assumption from FL Citizens

Acquired SVM Restoration Services (largest CAN vendor; provides water mitigation and repair services)

2016

2015 2017

2018

Acquired BRC Restoration Specialists, a FL‐based provider of restoration (e.g., construction) services and emergency and recovery assistance

Approved to write P&C insurance in NC, marking beginning of multi‐state expansion initiative (began writing NC business in 2016)

Announces acquisition of Zephyr, a wind‐only Hawaiian homeowners insurer

Initiated quarterly cash dividend

Closed Zephyr acquisition Began writing business in NC, SC Launched GL insurance Commenced National General

partnership FL tornado activity & Hurricanes

Hermine & Matthew AoB begins to impact results Final year Heritage participated in

Citizens assumptions

Began writing business in GA and AL Sawgrass Mutual policy assumption Hurricane Irma Acquired NBIC, a coastal

homeowners insurer in NY, NJ, CT, RI & MA

Received KBRA financial strength and investment grade issuer ratings

Hurricanes Lane, Florence and Michael

CAN expansion to non‐FL states

GEICO relationship expands Commenced Safeco

(Liberty Mutual) partnership


EXPERIENCED MANAGEMENT TEAMBruce Lucas: Chairman & CEO

Co‐founded Heritage in 2012 andhas been with the company sinceinception

Prior to Heritage, Mr. Lucas wasCEO of Infinity Investment Funds,a value‐oriented hedge fund

Before that, Mr. Lucas was anattorney with Weil, Gotshal &Manges where he representedlarge institutional clients such asEnron and GE

7

Richard Widdicombe: President

Co‐founded Heritage in 2012 and hasbeen with the company since inception

Prior to Heritage, Mr. Widdicombeserved as Risk Manager of HomeownersChoice Property & Casualty InsuranceCompany

Before that, Mr. Widdicombe wasPresident of People’s Trust InsuranceCompany and previously served aspresident of FedNat, both of which areFlorida‐based property insurers

Ernie Garateix: Chief Operating Officer

Has been in his current role since2014, prior to which he served asExecutive Vice President since thecompany’s 2012 founding

Prior to Heritage, Mr. Garateixserved as Vice President ofOperations at American IntegrityInsurance Group

Before that, Mr. Garateix wasAssociate Vice President of IT atFCCI Insurance Group

Kirk Lusk: Chief Financial Officer

Has been in his current rolesince 2018

Joined Heritage in 2017 via theacquisition of NBIC Holdings,Inc., where Mr. Lusk was alsoChief Financial Officer.

Before that, Mr. Lusk wasInternational Chief FinancialOfficer of Aetna, Inc., ChiefFinancial Officer of Alea GroupHoldings Bermuda Ltd. andChief Financial Officer of GEERC Global Casualty and GECapital Auto Warranty Services


Arash Soleimani: Executive Vice President

Has been in his current role since 2018

Prior to Heritage, Mr. Soleimani was asell‐side equity research analystcovering the P&C insurance sector atKeefe, Bruyette & Woods (KBW) andStifel Financial

Before that, Mr. Soleimani worked inDeloitte’s Audit & Enterprise RiskServices division

Mr. Soleimani is a CFA Charterholderand a licensed CPA

Randy Jones: President, Commercial Division Has been in his current role since

2014

Prior to Heritage, Mr. Jones ledAmerican Strategic Insurance’s (ASI)commercial division

Before that, Mr. Jones served inmanagement at other insuranceenterprises including Marsh &McLennan Companies

Mr. Jones holds the American RiskManager (ARM) and CertifiedProperty Insurance Adviser (CPIA)designations

VERTICALLY INTEGRATED STRUCTURE Unique, vertically integrated structure reduces our reliance on third parties, benefiting our loss, LAE and operating expenses,

while also serving as a hedge during catastrophe years.

CAN, our water mitigation and construction subsidiary, benefits our loss ratio in non‐catastrophe years via in‐sourcing work that would otherwise go to third parties. In hurricane years, CAN serves as a catastrophe hedge, reducing our earnings volatility and supporting P/E‐based valuation for HRTG.

MGA structure allows us to meet holding company capital needs (e.g., debt servicing, share repurchases, M&A, etc.)

Not currently using Osprey, our captive reinsurer, due to attractive market rates for third‐party reinsurance

8

Heritage Insurance Holdings, Inc. (NYSE: HRTG)

Heritage Property & Casualty Insurance Company (HPCIC)

NBIC Holdings, Inc

NBIC Financial Holdings, Inc.

Narragansett Bay Insurance

Company (NBIC)

NBIC Service Company

Westwind Underwriters, Inc.

Zephyr Acquisition Company

HI Holdings, Inc.

Zephyr Insurance Company, Inc. (ZIC)

Heritage MGA, LLC Heritage Insurance Claims, LLC

Contractors’ Alliance Network

(CAN)Osprey Re Ltd.

First Access Insurance Group,

LLC

Skye Lane Properties, LLC

Risk bearing entity (AL, GA, FL, MS, NC, SC)

Risk bearing entity (CT, RI, MA, MD, PA, NY, NJ, VA)

Risk bearing entity (HI)

Captive reinsurerProvides HPCIC & ZIC with underwriting, personnel and other services

Provides NBIC with underwriting, personnel and other services

Subsidiary that owns Heritage’s corporate headquarters

Mitigation and construction division, serves as a hedge in catastrophe years

ORGANIZATIONAL STRUCTURE


FL PRES, 45.4%

FL CRES, 9.0%

NY, 19.4%

NJ, 7.6%

MA, 6.5%HI, 5.8%

Other, 6.3%

PREMIUM SPREAD

BOOK OF BUSINESSAs of 4Q2018, we have $923.7 million of gross premiums in‐force across three statutory insurance entities (Heritage/NBIC/Zephyr) and write two mainlines of business, including personal residential (PRES) and commercial residential (CRES). We also write some commercial general liability (CGL)insurance. We’re actively writing in eleven states (note: in 1Q2019, we began writing in VA, our twelfth state), but have licenses in fifteen states.

9

PRES = personal residential • CRES = commercial residential • CGL = commercial general liability • TIV = total insured value

3 Statutory Insurance Entities:

HIAL, FL, GA, MS, NC, SC

CT, MA, MD, PA, NJ, NY, RI, VA

Includes: PRES in AL, CT, GA, NC, RI, SC and CGL in FL


= actively writing= licensed

FL PRES24.4%

FL CRES7.2%

NY28.9%

NJ12.2%

HI10.7%

MA8.7%

Other7.9%

PROPERTY TIV SPREADIncludes PRES in AL, CT, GA, NC, RI, SC

POLICIES‐IN‐FORCE METRICSFlorida accounts for 54.4% of Heritage’s consolidated gross premiums in‐force, but it only reflects 31.6% of total insured value (TIV) – the $4.97 average premium per $1,000 of TIV in Florida ($5.37 for Florida PRES policies) is almost triple the $1.91 non‐Florida average (Florida’s more expensive policies reflect its higher hurricane risk), while the $445,943 average insured value in Florida ($348,872 for Florida PRES policies) is well below the $766,985 average for non‐Florida states (property values in Florida trail those in Heritage’s Northeast US states).

10Fourth Quarter 2018 Investor Presentation

$348

,872

$7,749

,142

$445

,943

$766

,985

$422

,740

$457

,107

$508

,867

$515

,689

$630

,250

$654

,545

$754

,073

$852

,250

$927

,556

$998

,023

$5.37

$3.59

$4.97

$1.91 $2.41

$2.38

$1.56 $1.99

$2.35

$2.41

$1.81 $2.14

$1.69

$1.95

$0.00$0.50$1.00$1.50

$2.00$2.50$3.00$3.50$4.00

$4.50$5.00$5.50

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

$900,000

$1,000,000

FL PRE

S

FL CRE

S

FL PRE

S & CRE

S

Non

‐FL (100

% PRE

S) AL GA HI NC SC RI NJ

MA CT NY

Prem

ium/$1K

TIV

Average insured value pe

r policy

TIV Metrics (Property)

Average insured value (left axis)

Premium/$1K TIV (right axis)

YE2015 YE2016 YE2017 YE2018PRES $478.1 $515.9 $850.1 $837.1CRES 113.5 118.6 90.1 82.7CGL 0.0 0.8 2.1 3.8Total 591.5 635.3 942.4 923.7

YE2015 YE2016 YE2017 YE2018PRES 253,726 318,824 518,957 508,424CRES 3,405 3,625 3,100 2,973CGL 0 852 2,393 4,289Total 257,131 323,301 524,450 515,686

IN‐FORCE METRICS ($ in millions )Gross Premiums In‐Force

Policies In‐Force

DISTRIBUTION• Over 6,000 appointed producers across our multi‐state platform

• The CEO of SIAA, one of the largest independent agency networks in the US, is a member of Heritage’s Board of Directors, providing us with a strong growth platform in both new and existing states.

• Relationships with multiple auto carriers, whereby the policyholder receives a bundled product discount.

11

Overview

NBIC

• Over 2,300 actively writing independent agents

• 35% of voluntary premium is written by agents affiliated with eight large agency networks that have master agency agreements with HPCIC

• CRES policies are written through roughly 400 independent agents in FL

• Relationships with multiple auto carriers

HPCIC

• Roughly 175 retail independent agents representing approximately 500 agency locations

• 8 wholesale relationships that have access to 1,500 retail locations

Zephyr• Relationships with 70 actively writing independent agencies

• 52% of voluntary premium is written by agents affiliated with three large agency networks


REINSURANCE PROGRAMHeritage has a conservative 2018‐2019 reinsurance program, protecting the Company against hurricanes and severe weather events and reducing earnings volatility.

12

2017 Citrus 100% of

$117.2M xs $40MLa

yer 4

100%

of

$185

M x

s $

40M

2016 Citrus E 100% of $44.1M xs $40M

$1,592

$1,107

$498

$378.6

$1,320

$568

FL 1st Event

Top/Agg80% of $25M xs $10M

$997

$568

$40

Millions

2016Citrus

D35% of $428.6M

xs$568M

($150M)

$90

$215

Layer 3 100% of $229M xs $40M

1 @ 100% w/ RPP

Layer 192.1% of $50M xs $40M

1 @ 100% w/ RPP

Layer 292.1% of $125M xs $40M

1 @ 100% w/ RPP

$15Retention

FHCF Layer45% of

$1.213Bxs

$378.6M($546.0M)

$1,392$1,400

20% Co‐Par

Stub Layer 1$58

Stub Layer 2

Cat437.9% of

$63.4M xs $57.9M ($5M)

$121

Retention

80% of $25M xs $10M Top/Agg

2016 Citrus E 100% of $44.1M xs $40M

Layer 3 100% of $229M xs $40M 1 @ 100% w/ RPP

Layer 192.1% of $50M

xs $40M 1 @ 100% w/ RPP

Layer 292.1% of

$125M xs $40M 1 @ 100%w/ RPP

NE 1st Event

Millions

NBIC Multi – YearLayer 2

41.125% of$80M xs $60M (~$33M)

$40

$60

$818

$1,000

$122

$368

Net Quota Share

Gro

ss Q

uota

Sha

re 2

017

MY

–8.

0% o

f $1,

000M

xs

$0M

($80

M)


41.125% of$450M xs $550M

(~$185M)


41.125% of$410M xs $140M

(~$169M)

$550

$140

$20$15

$905

$867

20% Co‐Par

Stub Layer 1$59

Stub Layer 2

Cat437.9% of

$63.4M xs $57.9M ($5M)

$183

Top/Agg15.3%

of$313M

xs$40M

($48M)

$40

$444

Millions

HI 1st Event

Multi-Zonal84.7% of

$313M xs $40M($265M)

$757

Layer 3 100% of $229M xs $40M

1 @ 100% w/ RPP

Layer 192.1% of $50M xs $40M

1 @ 100% w/ RPP

Layer 292.1% of $125M xs $40M

1 @ 100% w/ RPP

$215

$90

$801

Top/Agg80% of $25M xs $10M

$15Retention

$683

20% Co‐Par

Stub Layer 1$58

Stub Layer 2

Cat437.9% of

$63.4M xs $57.9M ($5M)

$121

2016 Citrus E 100% of $44.1M xs $40M

Substantial severity and frequency protection

Roughly $2.5 billion of total catastrophe reinsurance coverage across multiple events ($1.4 billion available for a single event)

$20 million first event retention and $16 million 2nd event retention

Heritage’s third‐party reinsurers are rated “A‐” or higher by A.M. Best or S&P or are fully collateralized


INVESTMENT PORTFOLIOHeritage has a very conservative investment portfolio, consisting predominantly of low duration, fixed income securities. As yields increase, investment income should benefit.


US government, 9.1%

Munis, 11.3%

Special revenue bonds, 46.6%

Industrial bonds, 29.0%

Preferred stock, 0.9%

Equities, 3.1%

INVESTMENT PORTFOLIO BREAKDOWN (YE2018)

$136

.2

$331

.2

$400

.1

$603

.0

$567

.0

$526

.1

1.4%

1.6%

2.0%1.8%

1.9%

2.4%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

$0

$100

$200

$300

$400

$500

$600

$700

2013 2014 2015 2016 2017 2018

$ in m

illions

NET INVESTMENT INCOME PERFORMANCE

Investments (left axis) Net Investment Income yield (right axis)

Investment considerationsHeritage Insurance

VALUE PROPOSITION• Currently trading at significant discount to peers, despite attractive relative ROE and income metrics• Consistent track record of double‐digit book value growth• Vertically integrated structure provides a hedge in catastrophe years, reducing loss retention and

further reducing earnings volatility, supporting use of P/E‐based valuation for HRTG• Solid reinsurance program, including lowest reinsurance retention in our FL peer group as a % of

equity, protects against hurricanes and other severe events, reducing earnings volatility• Organic premium growth, fueled by relationships with independent agents and auto carriers • Diversification initiatives and re‐underwriting efforts in Florida’s Tri‐County – including rate

increases, policy form enhancements and conservative policy selection – should benefit underwriting margins

• Commercial residential business serves as an AoB‐hedge in Florida and provides us with additional growth opportunities

• Investment grade debt rating provides easy access to capital, allowing nimble response to market opportunities as they arise

• Below‐peer operating leverage = ample capital to fuel our growth• Track record of capital return via share repurchases and regular dividend• Successful M&A execution provides synergies and access to new markets• Significant insider ownership aligns management’s interest with shareholders

• CEO owns 4.0% of outstanding shares*• President owns 2.4% of outstanding shares*• Total insider ownership = 11.9% of outstanding shares*

15

Compelling financial metrics

Management has significant skin in the game

Growth & underwriting outlooks improving

Prudent capital management

Business model designed to reduce earnings volatility

* As of 3/26/2019, source = FactSetFourth Quarter 2018 Investor Presentation

UNDERWRITING PERFORMANCEHeritage has experienced significant premium growth since inception, stemming primarily from Citizensdepopulation transactions through 2015 and from M&A and organic growth in subsequent years. Importantly,Heritage’s underwriting operation has been profitable every full calendar year since inception.

16

Note 1: Peers include FNHC, HCI, KINS, UIHC & UVESource: FactSet and peer company reports

Heritage’s combined ratios have outperformed peers every full calendar year it has been inexistence

Heritage’s premium growth is unprecedented, reaching almost $1 billion ofgross in‐force premiums 5 years after the company’s founding. The modestpremium decline as of 3Q18 stemmed from Tri‐County FL exposure reductionefforts in response to assignment‐of‐benefits (AoB) claims abuse.


51.6 200.1 367.2 478.1 458.6 465.4 450.2

94.1

113.5 118.6 90.1 82.7

331.5 337.2

58.1

55.4 53.5

$51.6

$200.1

$461.3

$591.5$635.3

$942.4 $923.7

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2012 2013 2014 2015 2016 2017 2018

IN‐FORCE PREMIUM

HPCIC ex CRES FL CRES NBIC Zephyr

40.5% 40.1% 37.5%

58.0% 53.1% 52.3%

32.4% 31.3%27.5%

34.8% 41.0% 38.1%72.9%71.4% 65.0%

92.8%94.1%

90.4%80.8%74.8% 78.4%

93.3%98.5%

94.5%

‐10%

10%

30%

50%

70%

90%

110%

2013 2014 2015 2016 2017* 2018

SOLID UNDERWRITING MARGINS

Loss ratio Expense ratio Peers

Citizens takeouts benefit HRTG’s margins

Tornadoes, Hurricanes Hermine & Matthew, AOB

Hurricane Irma & AoB

Hurricanes Lane, Florence & Michael, AoB

CAPITAL MANAGEMENT & OPERATING LEVERAGEHeritage has been a responsible steward of shareholder capital and currently has a $50 million share repurchase authorization in place. Since 2016, the Company has returned almost $70 million to shareholders through common share repurchases and dividends.

Heritage’s ratio of trailing‐twelve‐month (TTM) net premiums written to 4Q2018 equity is only 1.0x , lowest in its peer group, which is indicative of its conservative balance sheet. Looking ahead, Heritage has adequate capital to fuel its premium growth and multi‐state expansion initiatives.


7.0 6.5 6.4

25.621.6

2.0

25.2

18.0

$32.6

$53.3

$26.4

20.7%

15.7%

23.5%

0%

5%

10%

15%

20%

25%

$0

$10

$20

$30

$40

$50

$60

2016 2017 2018*

$ in m

illions

DISCIPLINED CAPITAL MANAGEMENT

Dividends Share repurchase Debt repurchase Div payout ratio (right axis)

1.01.1

1.4 1.41.4

1.6 1.7

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

HRTG HCI KINS UIHC Peer avg UVE FNHC

Net ope

ratin

g leverage (N

PW/Equ

ity)

CONSERVATIVE NET OPERATING LEVERAGE

*2018 debt repurchase is net of new debt and stock issued in connection with Heritage’s December 2018 refinancing transactions.

CONSERVATIVE REINSURANCE RETENTION

18

Note 1: UVE retention includes both UPCIC & APPCIC and FNHC retention includes both FNIC and MNIC. Note 2: Calculation based on 21.0% and 5.5% US federal and Florida statutory corporate income tax rates, respectively.Source: Peer company reports


3.5%

7.2%

5.5%

6.6%

8.0%

8.6%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

HRTG FL peer median UVE HCI FNHC UIHC

AFTER‐TAX FIRST EVENT FLORIDA RETENTION AS % OF 4Q18 GAAP EQUITY

Heritage has the lowest reinsurance retention as a % of YE2018 GAAP shareholders’ equity, suggesting the smallest hit to book value from a hurricane (excluding storm‐related ancillary income streams).

41.1%32.4%

40.3%

27.5%17.8%

6.6% 5.5%

25.7%

15.4%

11.5%

3.8% 2.9%

58.9%67.6%

34.0%

57.1%

41.3%

21.7% 23.3%

100.0% 100.0% 100.0% 100.0%

70.6%

32.1% 31.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

4Q12 4Q13 4Q14 4Q15 4Q16 4Q17 4Q18

% OF CONSOLIDATED PROPERTY TOTAL INSURED VALUE (TIV) IN FL

Personal Residential: Tri‐County, FL Commercial Residential: Tri‐County, FL Other FL

DIVERSIFICATION STRATEGY UNDERWAY

19

Through a combination of M&A andorganic growth, Heritage has beendiversifying its book of business tonew states, resulting in a betterspread of risk and lower reinsurancecosts. Diversification has beenoccurring within the FL book too, asHeritage has steadily been reducingits personal residential (PRES) &commercial residential (CRES)exposure to Tri‐County, FL. PRESexposure reduction in Tri‐County isintended to limit exposure to AoBabuse, while CRES reduction isintended to reduce concentrationrisk in the event of a storm.


FAVORABLE CLAIMS TRENDSHeritage’s Tri‐County FL exposure reduction efforts are bearing fruit, as the region’s contribution to open non‐catastrophe claim counts continues to decline for both litigated and non‐litigated claims. This is benefiting overallclaims trends – beginning with 1Q18, litigated claims have been accounting for an increasingly smaller percentageof Heritage’s non‐catastrophe open claims inventory.

20

A decline in litigated claims should benefit underwriting margins, given that litigated claims are typically more expensive to resolve

Tri‐County FL claims are typically more expensive given the prevalence of assignment of benefits abuse in the region

Note: Excludes NBIC.


84%

82%

81%

82%

82%

79% 80%

79%

79%

79%

79%

78%

77%

73%

67%

66%

51%

47%

46%

58%

55%

52% 54

% 56%

55%

55%

55%

51%

49%

44%

41%

39%

30%

40%

50%

60%

70%

80%

90%

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

TRI‐COUNTY FL NON‐CAT CLAIMS TRENDS

Tri‐County open litigated claims as % of total open litigated claims

Tri‐County open non‐litigated claims as % of total open non‐litigated claims

35%38% 37%

41%46% 45% 45%

49%52%

49%52%

54%

44%

39%

33%31%

0%

10%

20%

30%

40%

50%

60%

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

LITIGATED NON‐CAT CLAIMS AS % OF TOTAL CLAIMS

SOLID BOOK VALUE PER SHARE GROWTH

21

Since inception, Heritage has provided investors with solid book value per share growth. Including cumulative dividends declared, Heritage’s book value per share compound annual growth rate (CAGR) is 28% since the Company’s 2012 inception.


$3.38

$7.20

$8.56

$11.71

$12.41

$14.67

$14.43

$3.38

$7.20

$8.56

$11.76$12.70

$15.20 $15.20

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

2012 2013 2014 2015 2016 2017 2018

SOLID GROWTH IN BOOK VALUE AND CUMULATIVE DIVIDENDS PER SHARE

Book Value Per Share Cumulative Dividends Per Share

ABOVE‐PEER ROE, BUT BELOW‐PEER VALUATION

22

TRADING AT A MEANINGFUL DISCOUNT TO PEERSSOLID ROE PERFORMANCE, EVEN IN HURRICANE YEARS

* HRTG’s 2017 ROE metrics are non‐GAAP and adjusted to exclude a $42.2 million non‐cash, non‐tax deductible charge related to the mark‐to‐market of a derivative liability associated with the Company’s convertible debt. The derivative liability was reclassified to equity in 4Q17.

Source: FactSet and peer company reports


9.1%

15.9%

6.1% 6.2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Return on Equity Average Return on Tangible Equity

2016‐2018 AVERAGE RETURN ON EQUITY VS. PEERS

HRTG*

Peer Median

1.0x

1.8x

1.0x

1.4x

1.8x1.9x

2.2x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

HRTG Peer median FNHC UIHC KINS HCI UVE

PRICE/BOOK VALUE

7.3x

9.2x

6.1x

7.6x

9.2x10.2x

11.3x

0x

2x

4x

6x

8x

10x

12x

HRTG Peer median FNHC UVE HCI UIHC KINS

PRICE/2019E EPSHRTG’s P/E multiple is at a 21% discount to peers

28.1%30.3%

9.5% 11.1%6.7%

0%

5%

10%

15%

20%

25%

30%

35%

2014 2015 2016 2017* 2018

RETURN ON AVERAGE EQUITYCitizens depopulation transactions benefit ROEs

Severe 1Q16 FL tornadoes, Hurricanes Hermine & Matthew

Hurricane Irma

Assignment of benefits (AoB) abuse

HIGHLY ATTRACTIVE VALUATION RELATIVE TO PEERS

HRTG’s large valuation discount doesn’t correspond to its returns relative to peers

23

*HRTG’s 2017 net income and ROE are non‐GAAP and adjusted to exclude a $42.2 million non‐cash, non‐deductible charge related to the mark‐to‐market of a derivative liability associated with the Company’s convertible debt. The derivative liability was reclassified to equity in 4Q17. Please see slide 24 for a reconciliation of HRTG’s non‐GAAP measures to their comparable GAAP measures.

HRTG* had higher net income than UIHC in each of 2014, 2015, 2016, 2017 and 2018. Despite consistently generating more net income, HRTG has a lower market capitalization than UIHC.

Source: FactSet and peer company reports


$47

$93

$34$41

$27

$41

$27

$6$10

$0$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

2014 2015 2016 2017* 2018

NET INCOME ($ in millions)

HRTG* UIHC

$460

$705

$0

$100

$200

$300

$400

$500

$600

$700

$800

HRTG UIHC

MARKET CAP ($ in millions)

Source: FactSet and peer company reportsSource: FactSet and peer company reports

Ticker Company 2019E 2020E Current 2019E 2020E 2016 2017 2018 2019E 2020E 2016 2017 2018HRTG Heritage Insurance Holdings, Inc. 7.1 6.4 1.0 0.9 0.8 9.5% 11.1% 6.7% 13.3% 12.7% 10.7% 20.0% 16.9%FNHC FedNat Holding Company 5.7 5.1 1.0 0.8 0.7 0.5% 3.7% 7.0% 15.4% 15.0% 0.5% 3.7% 7.0%HCI HCI Group, Inc. 9.7 8.6 2.0 1.8 1.6 12.1% -3.1% 9.4% 19.4% 19.8% 12.2% -3.2% 9.7%UIHC United Insurance Holdings Corp. 9.8 8.7 1.3 1.2 1.0 2.4% 2.6% 0.1% 12.6% 12.6% 2.5% 3.2% 0.1%UVE Universal Insurance Holdings, Inc. 7.4 7.0 2.2 1.9 1.6 29.9% 26.4% 24.9% 27.2% 24.4% 30.0% 26.5% 25.0%KINS Kingstone Companies, Inc. 12.0 10.0 1.8 1.6 1.5 17.5% 13.2% 3.4% 14.3% 15.4% 18.0% 13.4% 3.4%

Ex-HRTG coastal property median 9.7 8.6 1.8 1.6 1.5 12.1% 3.7% 7.0% 15.4% 15.4% 12.2% 3.7% 7.0%HRTG vs. ex-HRTG coastal property median -26.9% -25.3% -43.5% -46.7% -47.5% -2.6% 7.4% -0.2% -2.2% -2.7% -1.5% 16.3% 9.9%

P/E P/BV Return on Average Equity Return on Tangible Equity

APPENDIX: NON‐GAAP RECONCILIATIONS


RECONCILIATION OF GAAP AND NON‐GAAP MEASURES$ in millions

2017GAAP Net income (loss) (1.1)$ Conversion option liability fair value 42.2 Non‐recurring business acquisition related expenses ‐ Tax impact ‐ Adjusted net income 41.1$

2017GAAP ROE ‐0.3%Conversion option liability fair value 11.4%Non‐recurring business acquisition related expenses 0.0%Tax impact 0.0%Adjusted ROE (non‐GAAP) 11.1%

Arash Soleimani, CFA, CPAExecutive Vice [email protected]

Website: investors.heritagepci.com

ADDITIONAL INFORMATION

investor presentation - investors – heritage insurance€¦ · hrtg ipo (nyse): $11/share...

Documents