Heritage Insurance Holdings, Inc. (NYSE:HRTG) Q4 2025 Earnings Call Transcript

Heritage Insurance Holdings, Inc. (NYSE:HRTG) Q4 2025 Earnings Call Transcript March 9, 2026

Heritage Insurance Holdings, Inc. beats earnings expectations. Reported EPS is $2.15, expectations were $1.61.

Operator: Good morning, and welcome to the Heritage Insurance Holdings, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. Please note today’s event is being recorded. I would now like to turn the conference over to Kirk Howard Lusk, Chief Financial Officer for the company. Please go ahead, sir.

Kirk Howard Lusk: Good morning, and thank you for joining us today. We invite you to visit the Investors section of our website, investors.heritage.com, where the earnings release and our earnings call will be archived. Materials are available for replay or review at your convenience. Today’s call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon management’s current expectations and subject to uncertainty and changes in circumstances. In our earnings press release and our SEC filings, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, and we have no obligation to update any forward-looking statements we may make.

For a description of the forward-looking statements and the risks that could cause our results to differ materially from those described in the forward-looking statements, please refer to our Annual Report on Form 10-K, earnings release, and other SEC filings. Our comments today will also include non-GAAP financial measures. The reconciliations of and other information regarding these measures can be found in our press release. With me on the call today is Ernesto Jose Garateix, our Chief Executive Officer. I will now turn the call over to Ernesto Jose Garateix.

Ernesto Jose Garateix: Thank you, Kirk. Good morning, everyone. And thank you for joining us today. On this morning’s call, I am going to review the successful execution of our strategic initiatives in 2025 and our full year results. Review the competitive advantages that Heritage Insurance Holdings, Inc. has built over the years, which positions us for success looking out over the medium term, and conclude our strategic priorities for the year ahead. Kirk will then discuss our fourth quarter results, and we will open the call for your questions. As we have been discussing over the past several years, we have been intentional and disciplined in reshaping the foundation of our business. As an organization, we set out to transform our business with the goal of developing a model that delivers consistent earnings and sustainable shareholder value, even in a challenging and dynamic market.

To do that, we anchored our strategy around three initiatives that continue to guide every major decision that we make. First, we committed to generating true underwriting profit, not through reliance on market cycles, but through rate adequacy and more selective disciplined underwriting, as well as a solid distribution network. We have made hard choices, re-underwriting our book where necessary, ensuring that every policy we write meets our profitability standards, and aligning ourselves with the profitable and professional agents. Second, we focused on strategically allocating capital towards the products and geographies that offer the strongest returns, while being deliberate about where we pause, where we reinvest, and where we expand. This capital discipline has positioned us for thoughtful, measured growth with a focus on underwriting discipline and risk management.

And third, we prioritized targeting a balanced and diversified portfolio. By expanding across multiple states and product lines, we strengthened the stability of our earnings, reduced our exposure to regional volatility, and fortified the company against the risks that define our industry. I am proud to say that in 2025, we executed on these initiatives with precision and measurable success. We reopened profitable geographies, deploying capital in a thoughtful way designed to sustain long-term profitability. We maintained persistent underwriting discipline, supported by an ongoing focus on achieving and maintaining rate adequacy. We deepened our use of data-driven analytics, further strengthening the quality of our decision-making. We enhanced our customer service and claim capabilities, ensuring that the experience we deliver continues to improve.

And importantly, we leveraged our infrastructure and operational capabilities, building a scalable platform that positions us for responsible profitable growth in the years ahead. These initiatives and the consistent execution behind them are what continue to strengthen Heritage Insurance Holdings, Inc.’s earnings power, which can further be seen in our full year 2025 results, where we delivered net income of $195,600,000, or $6.32 per share, representing a strong increase from the full year 2024’s net income of $61,500,000, or $2.01 per share. Of note, our full year results included $31,800,000 of net pretax losses and loss adjustment expenses related to the California wildfires in 2025, which further highlights the significant earnings power within Heritage Insurance Holdings, Inc.

in which we remain focused on growing further. We also grew our tangible book value per share 72.5% to $16.39 at 12/31/2025, from $9.50 at 12/31/2024, while achieving an ROE of 49% for the year ending 12/31/2025. As we look ahead to 2026, our strategy continues to build on the strong foundation that we have created. First and foremost, we have achieved rate adequacy in more than 90% of the geographies where we operate, and they are currently open for new business. In fact, new business premium production increased over 60% in the fourth quarter as compared to the fourth quarter last year. We have continued to evaluate new geographies and products that will advance our diversification and expansion efforts. As a result of that rigorous evaluation process, I would like to mention that we plan to enter Texas later this year on an excess and surplus (E&S) lines basis.

Our production will focus predominantly on tier one and some tier two geographies, and will leverage our existing relationships as well as some new distribution partners. As we have done in California, which is also E&S, we will have underwriting and marketing employees in the state of Texas to stay abreast of the changing market needs and issues. As expected, we will maintain our focus on underwriting discipline, exposure management, and rate adequacy in our existing and new geographies. We have a long runway ahead to profitably grow our business and deliver value to our shareholders. A major emphasis in 2026 will also be the continued enhancement of our data-driven analytics, including deeper integration of AI and advanced technology tools.

These capabilities will sharpen our risk selection, improve operational efficiency, and help us identify opportunities across regions with greater precision while being compliant with regulatory requirements for AI use. At the same time, we remain committed to refining our customer service and claim capabilities, building on the improvements already underway to deliver a more streamlined, transparent experience for agents and policyholders. And throughout 2026, we will continue leveraging the scale and flexibility of our infrastructure, our systems, processes, and regional operating model, to support sustainable future growth. Fortunately, we have ample room to grow our business and can choose to be selective across our geographic footprint.

Lastly, reinsurance remains a critical component of our business, and we have maintained a stable indemnity-based reinsurance program at manageable costs with an excellent panel of highly rated and collateralized reinsurers. We regularly meet with our reinsurance and ILS partners who continue to support our growth, and whom we anticipate will offer incremental capacity as we look to our June 1 renewal. Additionally, we continue to see the benefits of tort reform as industry loss expectations for Hurricane Milton have been steadily coming down, largely due to reduced litigation, which benefits not only us, but our panel of reinsurers. Given the improved litigation environment in Florida, the lack of catastrophe losses, and the reinsurance capacity entering the traditional and ILS markets, we are optimistic that reinsurance pricing will improve in 2026.

We also believe that favorable reinsurance will benefit the consumer in terms of cost of insurance. To conclude, we have strong momentum as we enter 2026, with a positive outlook for both our growth and profitability. That said, we are not complacent with our results and strive to improve our organization and operations. I would also like to reiterate our dedication to navigating the complexities of our market with a strategic focus that prioritizes long-term profitability, shareholder value, and customer service driven by our dedicated workforce, who I would like to personally thank for their efforts over the last year. Kirk, over to you.

Kirk Howard Lusk: Thank you, Ernesto. Good morning. Turning to our financial highlights, we reported net income of $66,700,000, or $2.15 per diluted share in the fourth quarter, compared with net income of $20,300,000, or $0.66 per diluted share in the fourth quarter of the prior year. The period-over-period increase primarily reflected higher net premiums earned and net investment income, lower losses and loss adjustment expense, and lower policy acquisition costs. In-force premiums of $1,432,000,000, a decrease of 0.1% from $1,433,000,000 in the prior-year quarter, primarily driven by competitive market conditions reducing our commercial residential business while our personal lines business increased. Although we think many opportunities for controlled growth exist, we will not write policies that we believe are underpriced or do not meet our underwriting standards.

Gross premiums earned were $361,700,000, up 0.4% from $360,400,000 in the prior-year quarter, reflecting higher gross premiums written over the last year. We continue to focus on new business initiatives across existing and new geographies, subject to market conditions and our underwriting and pricing discipline. Ceded premiums decreased by $2,100,000, predominantly reflecting a catastrophe excess-of-loss premium reduction true-up as well as reinstatement premium during 2024 that did not recur in 2025. Net premiums earned were $202,700,000, up 1.7% from $199,300,000, reflecting the reduction in ceded premiums. Net investment income for the quarter was $9,800,000, up $1,300,000, or 15.9% from $8,500,000 in the prior-year quarter, reflecting higher invested asset balances coupled with actions to align the investments with the yield curve.

The average duration of the fixed income portfolio is 3.2 years as the company has extended duration from the prior year to take advantage of higher yields further out on the yield curve, while still maintaining a short-duration, high credit quality portfolio. Our total revenues for the quarter were $215,300,000, up 2.4% from 2024. As discussed, we expect our revenue growth to accelerate through 2026 as we ramp up our new business efforts. The net loss ratio was 31.3% for the quarter compared to 54.7% in the prior-year quarter, reflecting lower net losses and loss adjustment expense. Both attritional and weather-related losses were lower than in the prior-year quarter. Net weather-related losses for the quarter were $7,700,000, compared to $45,600,000 in the prior-year quarter.

There were no catastrophe losses in the current quarter compared with $40,000,000 in the prior-year quarter. The decrease in weather-related losses was accompanied by lower attritional losses and a reduction in unfavorable reserve development versus the prior-year quarter. Our attritional losses have been trending favorable, which we believe is associated with the underwriting strategy over the last several years. The net expense ratio for the quarter was 30.7% compared to 35.0% in the prior-year quarter. The change primarily reflected higher ceding commission income, relatively flat general and administrative expenses, and higher net premiums earned. Policy acquisition costs were lower primarily due to higher ceding commission income associated with both a larger amount of premiums ceded under the net quota share program and a higher ceded commission rate due to favorable loss experience within that program.

The net combined ratio for the quarter was 62.0%, an improvement of 27.7 points from 89.7% in the prior-year quarter, driven by the lower net loss ratio and the lower net expense ratio. Turning to the balance sheet, we ended the quarter with total assets of $2,200,000,000 and shareholders’ equity of $505,300,000. Book value per share was $16.39 at 12/31/2025, up 72% from 2024 and up 125% from 2023. The increase from December 2024 primarily reflected net income for the year and an $18,000,000 net-of-tax reduction in unrealized losses on the company’s fixed income securities portfolio. Unrealized losses related to a decline in interest rates during the year. Non-regulated cash at quarter end was $57,900,000. In addition, combined statutory surplus of our insurance company affiliates at quarter end was $392,600,000, an increase of $106,900,000 from year-end 2024.

The increase in statutory surplus provides for additional growth capacity as open and new territories get up to full capacity for new business. As the earnings power of the company has grown, we have built capital. We have prioritized the use of capital for organic growth and share repurchases when we believe our shares are undervalued. Considering our financial performance, demonstrated earnings resilience, and future earnings potential, we believe our stock is undervalued. Under our $10,000,000 share repurchase plan, we repurchased 106,135 shares in 2025 at a cost of $2,300,000. In November 2025, our Board of Directors established a new $25,000,000 share repurchase plan that will expire on 12/31/2026. We will continue to be opportunistic with share repurchases and purchased 112,858 shares at a cost of $3,000,000 during 2026.

Looking ahead, we remain focused on executing our strategic initiatives aimed at driving long-term shareholder value and providing our policyholders and agents with the service they deserve and expect. We believe that our diversified portfolio and distribution capabilities, along with our overall proactive management approach to exposures, rate adequacy, and investing in technology and infrastructure, will position us well for continued success. Thank you for your time today. Operator, we are now ready for questions.

Q&A Session

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question today comes from Mark Douglas Hughes with Truist. Please go ahead.

Mark Douglas Hughes: Yes, thanks. Good morning. The top line growth outlook you talked about, this impact of commercial residential being a headwind, your underlying residential book is growing. That dynamic, is it already worked through your P&L? Is there a little bit more headwind to go?

Kirk Howard Lusk: So we are seeing we have seen some more in commercial residential in Florida. So we will see what 2026 brings, but that is also we have pivoted to commercial residential as well out of New York, New Jersey, as well as Hawaii. But we think we have seen most of that competition in 2025. Okay.

Mark Douglas Hughes: And then when you look at the profitability in the business, can you give us a sense of kind of Florida, Northeast, other markets? As you grow, you know, maybe in the markets that you see more opportunity. Is that going to mean anything for the P&L? Or for the overall loss ratio?

Ernesto Jose Garateix: Sure. Great question. So as we have said, we are rate adequate in 90% of our geography. So if you take the Southeast, Florida, the book with the tort reform, and what we are seeing, right, without, you know, minimal CATs this year. Florida is very profitable. The Northeast has taken rates, so we are seeing profitability up in the Northeast. We go all the way out to Zephyr Insurance that they have taken rate, and we are seeing an uptake there from the profitability side. So we will continue to get the remaining, let us just say, 5% to 10% of the geographies rate adequate, but we are really excited about 90% of rate adequacy throughout geographies, which opens up all business and those areas will be opened up throughout 2026. Very good.

Mark Douglas Hughes: Kirk, the $392,393,000,000 in surplus. Is that sufficient for 2026? Do you think you will have to add any more?

Kirk Howard Lusk: No. No. We think that that actually is pretty adequate. I mean, it is up about $106,000,000 from last year, so really nice increase in the statutory surplus. Really positions us well for the growth we are anticipating. Particularly given the combined ratios we have been running, you know, that actually has been adding the capital also. So we are in good shape there.

Mark Douglas Hughes: Yeah. And assuming you maintain decent profitability, that $25,000,000 share repurchase authorization seems low. I mean, just relative to your net income this quarter, for instance, that is $25,000,000 seems low. Could there be more action on that front in the near term? Picking that up a little bit perhaps?

Kirk Howard Lusk: Yeah. I mean, our board, you know, would authorize. You know, we can go back to them at any point for a reauthorization on that. And, again, we did buy a little bit back in the first quarter. And so, you know, we will be looking at that going forward.

Mark Douglas Hughes: Yeah. Is there any target kind of a run-rate combined ratio that you have in mind when you think about the overall book? You know, where should it settle in?

Kirk Howard Lusk: Well, I mean, I think that, you know, right now, we have some pretty good headwinds. Looking at even, you know, into next year, particularly, I think that we are looking at some reinsurance rate decreases, which is going to be favorably impacting that. So I think it is going to continue to be, you know, rather favorable for the next couple years. And I think that, you know, over a longer period of time, I think that, you know, it could start tweaking up a little bit simply from the standpoint of, you know, as rates start stabilizing. I think it could start going up. But I think for the next couple of years, it could be, you know, comparable to where we are.

Mark Douglas Hughes: So combined ratio absent the storms on an underlying basis, you would say? Reasonably steady the next couple of years. Health care reinsurance, and then maybe some normalization in rates starts to move that up a little bit.

Ernesto Jose Garateix: Correct. Yeah.

Mark Douglas Hughes: Yeah. Okay. Alright. Thank you very much.

Ernesto Jose Garateix: Thank you, Mark.

Operator: The next question comes from Jon Paul Newsome with Piper Sandler. Please go ahead.

Jon Paul Newsome: Yeah. Good morning. I was wondering if maybe unpack a little bit of the gross premium parts and outlook and, you know, the results to date. A little bit more color on what is going on with commercial residential, and how that is, you know, is it the relative decline just the commercial auto, or are there other pieces there that we should be thinking about when we are thinking about the gross written premium outlook.

Ernesto Jose Garateix: Yeah. So on the commercial residential, as we mentioned, we saw some increased competition coming in. But that being said, from a P&L and the profitability, it is still very profitable. Again, there is some competition where we decided to walk away just because the rate was not there. But overall, we are still very satisfied from the profitability standpoint on commercial residential. But we do expect to grow that in 2026. Kirk, I do not know if you want to add a little bit more on overall.

Kirk Howard Lusk: And I think, Paul, it is, yeah, we did see a lot of competition there. But, I mean, one thing to keep in mind, I mean, we have a dedicated team, dedicated president, dedicated underwriters, dedicated claims family folks to those. So that really gives us a little bit of competitive advantages when you think about that commercial business. And I would think that we are able to kind of work through the market inflows and outflows. And so I think that you are going to see that stabilize, possibly increase this year.

Ernesto Jose Garateix: Great.

Jon Paul Newsome: Not a huge number, but can you talk a little bit about the reserve development?

Kirk Howard Lusk: Oh, yeah. Absolutely. Yeah. That really stems from, you know, when we look back at, you know, overall, we have had a fair amount of favorable development this year for the full year. When we look back at the storms that are still outstanding, there are a few lingering claims out there. And what we did is we just felt that it was prudent to then boost the reserves to make sure that those are, you know, adequate for anything that we could foresee on those last few remaining claims.

Jon Paul Newsome: So all the development would be in the CAT, but under the CAT category.

Ernesto Jose Garateix: Correct. That is correct.

Jon Paul Newsome: Okay. Thanks. I appreciate the help, as always.

Ernesto Jose Garateix: Alright. Thank you. Thanks, Paul.

Operator: The next question comes from Karol Krzysztof Chmiel with Citizens. Please go ahead.

Karol Krzysztof Chmiel: Thank you. Good morning. Just a follow-up on the top line questions and specifically Florida. Can you just comment on the Florida residential market and if there is stop-and-go going around?

Ernesto Jose Garateix: So on the Florida residential market, a lot of the new that you are seeing is still going through basically the assumption process, the takeout process. So we would probably anticipate more of the voluntary competition coming in at the later half of 2026, more into 2027, since their initial focus is mostly on the takeout business. Alright. Thank you, Karol.

Operator: We have a follow-up from Mark Douglas Hughes with Truist. Please go ahead.

Mark Douglas Hughes: Yeah. Thanks. Kirk, anything on the policy front in terms of just the ratio, is that going to move up a little bit as you pursue new business? Yeah. And then net investment income, nothing unusual. Looks like it was just up a bit sequentially. Do you think that will keep moving up? Just something in new money yield, the duration, is that still on an upward trajectory?

Kirk Howard Lusk: It will up slightly. Also, we did have the net quota share program at NBIC, and we are looking, we reduced that at year end. When we look at the ceding commission that we were getting from that program, that will reduce a little bit. So therefore, our acquisition costs will go up a little bit, but then also, so will our net earned premium by reducing that net quota share. Yeah. Yeah. Despite kind of the drop in interest rates, I mean, we have been actually able to, because we were so short before, we were able to move out on the yield curve, which gives us a little bit more yield there. And then also because of the increasing cash flow, we are anticipating that that is going to actually, you know, give us a little bit of boost on the investment.

Mark Douglas Hughes: Very good. Thank you.

Operator: Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to the management team for any final remarks.

Ernesto Jose Garateix: Thank you for joining us today. I would like to thank our employees for all their efforts, and we wish everyone a great week.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.