Good afternoon and welcome to the Heritage Insurance Holdings Third Quarter 2024 Earnings Conference Call. Please note, today's event is being recorded. I would now like to turn the conference over to Kirk Lusk, Chief Financial Officer for the company. Please go ahead, sir.

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 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 Ernie Garateix, our Chief Executive Officer. I will now turn the call over to Ernie.

Thank you, Kirk. Good afternoon, everyone, and thank you for joining us today. To start, our thoughts and support are with the many people who were impacted by the devastating hurricanes that affected so many communities across the southeast. This has been a difficult storm season that has left millions with significant damage and loss. At Heritage, we are working tirelessly to support our policyholders and communities to ensure they have the necessary resources to quickly rebuild. I am especially proud of our employees from across our company who have been providing a rapid response to our value policyholders as well as hundreds of adjusters and emergency service providers that we have in the field to support our customers daily. To ensure we are offering the support that our policyholders expect, we track a series of metrics to ensure our operational effectiveness. As an example, at 21 days following Hurricane Milton, we received 6,352 claims with the average wait time for policyholders calling in their claims of under one minute. We had over 230 employees throughout our footprint taking first notice of lost calls while we also have over 200 vendors ready and responding to emergency services. I would like to thank our employees, many of whom themselves were impacted by the hurricanes, for their incredible effort during this challenging time. Their commitment to our policyholders has been remarkable and a testament to the culture at Heritage. While I am proud of our support to our policyholders. I am also very proud of our financial results, which clearly demonstrate the successful execution of our strategic initiatives that I laid out when I was appointed CEO of Heritage three years ago. Our initiatives have been focused on achieving rate adequacy, enhancing our underwriting discipline, and allocating capital to drive growth and…

Thank you, Ernie, and good afternoon, everyone. As Ernie highlighted, our results this quarter reflect the success of our strategic initiatives. Starting with our financial highlights, we reported net income of $8.2 million, or $0.27 per diluted share, compared to a net loss of $7.4 million, or a loss of $0.28 per diluted share in the prior year quarter. The increase in net income was driven by the positive impact of our rate actions, our underwriting actions, and our targeted exposure management taken over the last several years, which continue to favorably impact our results. Demonstrating the improvement to the portfolio, and to put that into context, in the third quarter of 2022, with Hurricane Ian, we incurred a full $40 million retention loss and reported a net loss in the quarter of $48 million. In 2023, with the Maui fires and Hurricane Adelia, we also had $40 million of cap losses and reported a $7 million net loss in the quarter. While this year, we sustained $48 million of cap losses in the quarter with Hurricanes Debbie and Helene and reported net income of $8 million. Our total revenues for the quarter were $211.9 million, up 13.7% from $186.3 million in the prior year quarter. This increase was driven by the increase in net earned premiums and investment income. Gross premiums earned rose to $354.2 million, up 5.1% from $337 million in the prior year quarter, reflecting our strategic focus on rate adequacy and organic growth in our commercial residential line. Net premiums earned increased to $198.8 million, up 12.6% from $176.6 million in the prior year quarter, as the growth in gross premiums earned outpaced the increase in seeded premiums. Our strategic focus on expanding profitable products and markets includes the organic growth of our commercial residential business,…

We will now begin the question-and-answer session. [Operator Instructions]. The first question today comes from Mark Hughes with Truist. Please go ahead.

The loss ratio excluding the weather, excluding the cast, was really striking, and particularly when you take into account the prior year development. You've talked quite a bit on the call about the initiatives that you've undertaken to help achieve that and the regulatory help. Is this level, is this sustainable? Is this a new normal? How much of this was just at a pretty good quarter aside from the major events, or is this kind of the starting point that we think about other factors that might drive it going ahead?

Mark, thank you. Great, great question. I think it's a little of both. But when you look at it, it was typically the third quarter is a pretty good quarter, followed by the fourth quarter, which is typically our best quarter in the year. But we are seeing some very favorable trends on the attritional loss ratio. The underwriting actions we've taken, the rating actions we've taken over the last several years, on top of the legislative reforms, are having a very favorable impact on our results. So we think that there is a bit of favorability in the third quarter, but it is more close to a new norm, I think, as we go forward as far as kind of how we're looking at it from a profitability standpoint.

Right. Okay. How about, so you talked about the rate momentum as you continue to earn that through. How much more of a tailwind is there? You've taken a lot of rate actions and, you know, considering the trajectory of those and how much has already been earned through. Where are we in that process of having it flow through the P&L?

Yeah, Mark, this is Ernie. So there's quite a bit still to come in 2025 that we plan for, but the one thing I'll make a comment about is we're always looking in each of the geographies and products to make sure they're rate adequate. So that's always going to be an ongoing effort. And, again, we've said this over the earnings calls. We're going to aim to be profitable in every single state in which we do business and under the products that we offer there. So there's a constant relooking at those rate adequacy products to make sure, they are adding to the bottom line.

And, Mark, do you get an idea, just as far as the tailwind, we are expecting more earned rate coming through in 2025 than we had in 2024.

Right, more on an absolute basis coming through in 2025. Not necessarily a rate of change, but just on an absolute basis.

Correct, yes.

Yes, okay. And then what do you see as the more attractive geographies at this point? You've got a lot to choose from, seemingly. How do you view Florida versus the Northeast or other markets?

So we do think that Florida, again, with a lot of legislative changes and the rate adequacy is attractive to us. But, again, we look at the Northeast as well. The Northeast has been taking rate in New York, New Jersey, and other states up there. So those are getting closer to rate adequacy and then looking at doing some more business up there. But, again, the overall theme is looking at rate adequacy and having a managed diversified portfolio across, and that gives us plenty of options.

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

Congrats on the quarter. I was hoping you could give us a little bit more details on the reserve development, just, actually your sources. It's a little bit, I think, sometimes in contrast with the fact that it looks like total reform should maybe reserves go the other way potentially. The initial call would be fantastic on that.

Yes. I appreciate that. And that actually has to do with Irma, which, I mean, again, we only have a couple hundred claims remaining, to basically get that thing completely settled. However, just due to the, legal environment that those fall under that there is some volatility still associated with some of those. So that is really the biggest driver of that. In fact, actually it's almost all of it is just Hurricane Irma.

Is there any concern or should we be watching for any potential restatement premiums related to milling if it creeps into certain layers?

Yes, we've actually already included that in the latest, you know, estimate there. As far as when we indicated the, we anticipated about $57 million for milling that type of stuff, that included kind of the retention and then plus reinstatement premiums.

And then finally, also, are there any potential for unrelated claim management fees related to the hurricanes that have come forth in the fourth quarter?

Say again, can you repeat that? All of the claim management fee?

Sometimes the other income includes revenues that are gained off of management claims that, essentially you're doing it for the reinsurance. It can be a little bit of an offset. Is there anything in there potentially for the fourth quarter?

Yes, Paul, good question on that. I mean, there could be some, but it's not going to be material.

[Operator Instructions]. This concludes our question-and-answer session. I would like to turn the conference back over for any closing remarks.

Thank you again for joining the call today. We hope everyone has a great afternoon.

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