Good morning, and welcome to the Heritage Insurance Holdings Third Quarter 2025 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.

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 morning, everyone, and thank you for joining us today. We delivered strong third quarter results, having achieved net income of $50.4 million, up significantly from a year ago and maintaining the positive trajectory of our earnings. As Kirk and I have been discussing on our earnings calls over the last year, we continue to see tangible results from the successful implementation of our strategic initiatives, which were designed to generate positive and consistent shareholder returns by attaining and maintaining rate adequacy, managing exposure, enhancing our underwriting discipline and improving claims and customer service levels. This has created a significant amount of earnings power within Heritage, which continues to show through. As part of that strategy, we re-underwrote our personal lines book while taking needed rate increases to achieve adequate rates. This has led to a steady contraction in our policies in-force over the last 4 years, while our in-force premium increased from approximately $1.1 billion to an all-time record in the third quarter of $1.44 billion. At the same time, we improved both the quality and the diversification of our book of business. Looking out over the next 6 months, we expect our personal lines policy count to return to growth as we have now opened nearly all of our geographies to new business as compared to only 30% a year ago. We are already seeing our new business production ramp up with new business premium written for the third quarter of $36 million, representing an increase of 166% as compared to $13.7 million of new business written in the third quarter of last year. The decline in our policy count continues to moderate, having decreased by 6,800 policies in the third quarter as compared to a decrease of over 19,000 policies in the third quarter…

Thank you, Ernie, and good morning, everyone. Starting with our financial highlights. We reported net income of $50.4 million or $1.63 per diluted share in the third quarter, which compares very favorable to the $8.2 million of net income or $0.27 per diluted share that we reported in the third quarter last year. The increase was primarily driven by a significant reduction in losses and loss adjustment expenses, combined with a decrease in other operating expenses. For the 9 months ended September 30, we reported net income of $129 million or $4.17 per diluted share, which is a substantial increase from the $41 million of net income or $1.35 per diluted share that we reported for the first 9 months of 2024. Gross premiums earned rose to $362 million, up 2.2% from $354.2 million in the prior year quarter, reflecting the rate actions that we have taken, combined with organic growth in selected geographies as we open more regions for new business. This was partially offset by a decline in commercial residential business due to competitive market conditions. As Ernie touched on, we expect our growth to accelerate at a managed pace through 2026 as we ramp our new business efforts across our recently opened geographies. Net premiums earned were $195.1 million, down 1.9% from $198.8 million, resulting from increased ceded premiums. The increase in ceded premiums was driven primarily by a $4 million reinstatement premium for Hurricane Ian and an increase in the Northeast quota share program as written premiums from that program grew from the prior year quarter. The result was an increase in ceded premium ratio to 46.1%, up 2.2 points from 43.9% in the previous year third quarter. Our net investment income for the quarter was $9.7 million, relatively flat due to a higher portfolio value,…

[Operator Instructions] The first question is from Mark Hughes with Truist.

The growth prospects, you talked about the PIV growth in 2026. How do you evaluate the opportunity in Florida versus outside of Florida?

Sure. So there's still plenty of opportunity for us in Florida. If you kind of go back to a couple of years, we derisked a bit in Florida, especially in some of the Tri-County areas. So there's plenty of runway for us in Florida. We understand there's more new markets in Florida, but our name has still been predominant with the agents, and that's why we talked quite a bit about our agency relationships, which remain strong. And the agents have been -- we've been working with the agents. They have reached out to us about continuing to write. So as we mentioned on the call there, $30-plus million of new business premium is something that is only gaining more momentum in Florida.

Okay. Of that new business momentum, I think you talked about $36 million was -- how much of that was Florida?

We have that number here. I'll get that for you.

In the meantime, I'll ask, how do we think about the pricing or competitive environment in Florida? It looks like commercial property is really a tremendous amount of pressure. I know in homeowners, the pricing cycle is a whole lot slower. But what's your current anticipation in terms of pricing? I think you've talked about filing for maybe low mid-single-digit rate decreases in 2026. Is that still a fair assessment? And is that...

That's still a fair assessment, right, we have a current filing with the -- pending with the OIR for a rate decrease. And the plan would be as well in '26, we've also planned for a single-digit rate decrease. Regarding commercial, you're right, there is more pressure, but I also remind people where the beginning point is when you're talking about CRs in the 70s, yes, they have pushed up slightly to 80%, but an 80% CR is still very profitable in the commercial lines arena.

About $17 million of that new business was Florida.

Okay. So kind of consistent with your current mix. And then ceded premiums in absolute dollars, is this a good starting point when we think about the fourth quarter, the $166 million, $167 million?

Yes. It's probably going to be a little high. We had about a $4 million onetime adjustment in there due to reinstatement premium. So yes, I think if you look at backing off some of that, then you're going to be about where the number needs to be.

So low $160s million. Is just reinstatement premium from Ian?

Yes, Ian and Milton -- sorry, it was Ian.

Okay. So it shows up a couple of years later?

Yes.

Okay. How much growth can you support with the surplus that you've got, the $352 million up pretty substantially? Will that be good enough for kind of what you're seeing in 2026?

Yes. Well, I think if you look at kind of where our change in statutory surplus is for the year, it's up about $66 million. And then if you assume that, that is 3:1 ratio, that type of stuff, that gives us over $180 million of net earned premium to write. And again, that's net written. So then you actually figure that, that number is going to be a little higher because of the ceded. And so therefore, I mean, you're looking at roughly well over $225 million, $250 million of premium that we can write based upon that increase in surplus. And then again, that doesn't include any improvements in that number in the fourth quarter.

Yes. Yes, which I guess leads to the question, with your level of earnings and your strong capital position already, I think you talked about $2 million in buybacks in the quarter, but it seems like there's going to be a lot of excess capital floating around in pretty short order. What are the priorities there? Is that something you could act sooner rather than later on maybe further buybacks?

And again, one of the things we also mentioned is that the Board did authorize an additional $25 million worth of stock buybacks. And again, I think if you look at our capital priorities, again, it's one, it's using capital for growth because of the ROEs we're able to generate. Second of all is we do look at where our stock is trading. We still think it's undervalued. So therefore, stock buybacks is our second priority and then dividends after that with the ROEs, if we can't generate what we think are substantial ROEs. So that's kind of like the priority of our capital utilization.

Yes. Yes, I hear you. Yes, your net income relative to your market cap relative to your capital requirements is pretty striking when you put all that together.

Yes. Yes, it is.

The next question is from Karol Chmiel with Citizens.

I just have a follow-up question to Mark's question about the new business. So if $17 million of the $36 million was Florida, roughly $19 million was outside of Florida. Can you just maybe comment on where you're seeing the most momentum of those territories outside of Florida?

Yes. So Virginia is a new growing state for us as well as growth in Hawaii. New York is also ramping up. And the one reminder there is that we did take additional 9%, which made us rate adequate in New York. So that started midyear. So that is only beginning and will kind of roll into '26. So additional states as California on an E&S basis also is another positive momentum growing for us.

Okay. Great. And just a quick question on this favorable development of $5 million. Is this still due to the reserve strengthening of last year?

Yes. It has partially to do with that, and it just also has to do with just kind of what we're seeing in the underlying portfolio. So again, we think that we're adequately reserved for sure. So yes, it does have to do a little bit with that where we did take a hard look at last year.

At this time, there are no further questions. So this concludes our question-and-answer session. I would like to turn the conference back over to Ernie Garateix for any closing remarks.

We'd like to thank everyone for joining the call and thank especially our workforce and our employees for all their hard work this year.

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