Good morning, and welcome to the Heritage Insurance Holdings First Quarter 2024 Earnings Conference Call. [Operator Instructions]. This call is being recorded on Thursday, May 2, 2024. I would now like to turn the conference over to Kirk Lusk, Chief Financial Officer for the company.

Good morning, and thank you for joining us today. We invite you to visit the Investors section of our website, investors.heritagepci.com, where the earnings release and our earnings call will be archived. These 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 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 reconciliation of and other information regarding these measures can be found. With me on the call today is Ernie Garateix, our Chief Executive Officer. I will now turn the call over to Ernie.

Thank you, Kirk, and thank you all for joining us today. I will provide some highlights of our first quarter performance, discuss our progress in achieving key objectives and offer insights into our strategic initiatives. Following my remarks, Kirk will provide details on key financial performance metrics, after which we will open the call for Q&A. I am pleased to report a solid start to 2024 with a first quarter net income of $14.2 million, which is a slight increase from the $14 million reported in the same period last year. This improvement primarily reflects the success of our ongoing strategic initiatives aimed at achieving rate adequacy, underwriting discipline and capital allocation. We've expanded our portfolio where rates are adequate and where we have modest concentration where either rates are inadequate or we have overconcentration. We've continued to receive approval from our regulators to take rate were indicated. These actions represent the key strategic objectives that have been implemented over the past 2 years. While our exposure management initiatives have intensely reduced our policies in force, premiums in force has increased for each of the last 9 consecutive quarters. In-force premiums at Q1 2024 was $1.4 billion, a 6.2% increase over the first quarter of 2023. The costs associated with Riding Property Insurance in recent years has increased materially due to more frequent and severe weather, excessive claim litigation in Florida, higher reinsurance costs and general inflationary impacts on the cost to repair properties. As such, our rate need has escalated over the last several years. We saw and were approved for rate increases that were substantial in certain geographic areas and those new rates are being earned over the life of the associated policies. For 2024, we anticipate higher gross premiums driven by rates approved in 2022, 2023 and…

Thank you, Ernie. Good morning, everyone. As Ernie highlighted, we began 2024 on a strong note, with first quarter net income of $14.2 million or $0.47 per diluted share. This result represents an improvement in our net income over the prior year, driven by an 8% increase in net premiums earned and a notable rise in investment income. Additionally, it is important to note that the decrease in earnings per share was influenced by higher average weighted number of shares outstanding due to the equity issuance and stock grants net of forfeitures. Our gross premiums written this quarter were $356.7 million, a 14.9% increase from the prior year quarter, reflecting our strategic focus on enhancing our product offerings and expanding into profitable segments. Gross premiums earned followed suit, rising to $341.4 million, up 7.7% from the prior year quarter. Net premiums earned increased by 8.1%, reflecting the increase in gross earned premiums outpacing the increase in ceded premiums. We expect an improvement in our ceded premium ratio going forward and for the growth in net premiums earned to accelerate throughout 2024. Total revenue for the quarter reached $191.3 million, marking an 8.1% increase compared to $176.9 million in the prior year quarter. This increase in revenue is bolstered by our higher net earned premiums and an increase in net investment income, which rose due to our positioning and its current yield curve opportunity. Losses and loss adjustment expenses were $102 million for the quarter compared to $97.5 million in the first quarter of 2023. The net loss ratio improved to 56.9%, down from 58.7% in the prior year quarter, even with higher weather-related losses of $5.6 million and unfavorable loss development of $6.7 million compared to favorable development of $1.5 million in the prior quarter. The improvement in the loss…

[Operator Instructions] And our first question will come from Maxwell Fritscher from Truist.

I don't know if this was answered, but different sources have been modeling more active storm season this year. What is your internal model saying? And do you think that the rate adequacy in Florida is there?

Okay. Yes. I mean we're hearing that there is a slight uptick as far as the possibilities. I mean, there's always the issue as far as whether it's going to make landfall or not. I mean, our internal models actually slow like slight increase, not quite to the extent of some of the others. As far as the rate adequacy in Florida, that is looking extremely positive. I think that a lot of the rate actions that we've taken over the last several years, including the underwriting activities have really kind of fine-tuned the portfolio. The legislative changes that occurred. I would say we are you cautiously optimistic, and I'm sure you've heard that term before about kind of what we're seeing there. But right now, it looks like it is having the desired effect. So, overall, it's looking pretty good.

And then secondly, not big numbers here, but the policy acquisition cost ticked up a bit in the quarter. Looks like it was running in the mid-12% in '24. What should we expect the run rate to be in -- or sorry, that was in 2030, what should we expect the run rate to be in '24?

In '24, partly, acquisition costs, I think you're going to see go back closer to the historic norm. Simply from the standpoint, we had about $3 million worth of reduced ceding commissions in the first quarter. That had to do with some runoff of the last year's quarter share. And so, it will actually go more into the norm going forward.

And our next question comes from Mark Hughes from Truist.

Did you make any commentary just regarding your kind of posture around top line growth? How do you view adequacy of pricing at this point? And are we at a juncture where you can feel better about adding to the top line? And, of course, that takes into account capital considerations. But anything you might be able to, if you've already commented leave that one go, but any elaboration would be appreciated.

No, we can make a comment on that. So, I think we've been taking rate over the past 2 years. We're much more comfortable in specific geographic areas and where that rate adequacy is and then looking to grow that top line very specifically. I would say, since we are a super-regional care, there are other areas that we're still focusing on getting some more rates. But I would say, overall, as you look into '24 and going forward that the rate adequacy in specific regions that we are focusing on to grow that top line through policy counts, you'll see that coming through.

Yes. And just one other comment I'd like to or 2 comments. One is, when you look at our nonregulated cash as far as how we're sitting for growth, we do have over $50 million worth of nonregulated cash in the entities that we can push down and utilize that for growth opportunities in the future where we see fit. The other comment I think we always make in that type of stuff is due to seasonality and the winter storms in the Northeast. Typically, the first quarter is our worst quarter.

And then did you touch on the take-outs, whether take-outs would be of interest to you at all?

So, we always do our due diligence and look at the takeout. I think right now, we're pretty more optimistic with the rate adequacy we're seeing in certain regions that go in through organic growth with our value partners and the agents is a better opportunity for us. But that doesn't mean we won't be considering the takeout. It will all be something that we do as part of our in diligence every quarter.

[Operator Instructions]. There are no further questions at this time. Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to management team for final remarks.

Yes. I'd like to take this opportunity to thank all our employees for their dedication as well as shareholders, our reinsurance partners and agents for their continued support. I appreciate everybody joining the call today, and I hope everyone has a great day.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.