Heritage Insurance is navigating a challenging landscape, with recent catastrophic events impacting its excess and surplus (E&S) business. The company, which provides E&S coverage in California, Florida, and South Carolina, is assessing expansion into more states, but its recent financial results reflect the impact of severe weather events.
Executives estimate pretax net catastrophe losses from the January wildfires in California to be between $35 million and $40 million. Chief Financial Officer Kirk Lusk reported that 35 claims have been filed related to the wildfires, with 15 classified as total losses and the remainder due to smoke damage. The Palisades Fire in Los Angeles was the primary source of these claims.
Heritage’s controlled growth strategy allows for rate and coverage adjustments based on individual state dynamics, aiming to maintain risk-adjusted returns, according to CEO Ernie Garateix. However, the fourth quarter of 2024 saw a decline in net income, falling to $20.3 million from $30.9 million in the same period the previous year.
Catastrophe losses significantly increased to $40 million, up from $3.1 million in the fourth quarter of 2023. Lusk attributed the increase to Hurricane Milton, which struck Florida’s central west coast before moving across the state in early October. Earlier estimates suggested that Hurricane Milton would have a $57 million impact, including $40 million in retained catastrophe losses, and a $17 million net reinstatement premium.
Heritage reported fourth-quarter gross premiums earned of $360.4 million, a 6.1% increase from $339.6 million a year earlier. Net premiums earned grew 12.1% to $199.3 million, up from $177.7 million. However, the company’s net loss ratio rose to 54.7%, up 3.7 points from the previous year’s 51.0%, primarily due to catastrophic weather events. The net expense ratio also increased, by 1.1 points to 35.0%, leading to a net combined ratio of 89.7%, up 4.8 points from 84.9% in the fourth quarter of 2023.
Despite these challenges, Heritage’s book value per share reached $9.50 as of December 31, 2024, a 30.3% increase from year-end 2023 and an 85.2% increase from year-end 2022. The company’s ability to adapt its strategies may determine how successfully they navigate the challenges posed by increasing catastrophe events.
