Heritage Insurance Navigates Catastrophe Losses
Heritage Insurance is reporting significant losses from recent natural disasters, specifically the January wildfires in California and Hurricane Milton. The company, which primarily provides excess and surplus (E&S) coverage, is assessing the financial impact and adjusting its operations.
Heritage estimates that the California wildfires will result in pretax net catastrophe losses ranging from $35 million to $40 million. Chief Financial Officer Kirk Lusk reported that the company has received 35 claims related to the wildfires, with 15 classified as total losses and the remainder attributed to smoke damage. Most of these claims originate from the Palisades Fire in Los Angeles.
Heritage currently operates its E&S business in California, Florida, and South Carolina. The company is actively considering expansion into additional states. CEO Ernie Garateix noted that the company’s strategic growth model, allowing it to tailor rates and coverage based on individual state dynamics, is pivotal in maintaining risk-adjusted returns.
Financial Performance and the Impact of Catastrophes
The company’s fourth-quarter financial results reflect the impact of significant catastrophe events. Net income for the quarter declined to $20.3 million, a decrease from $30.9 million in the same period the previous year. Catastrophe losses rose sharply to $40 million, compared to $3.1 million in the fourth quarter of the prior year. Much of this increase is attributed to Hurricane Milton.
Lusk specifically cited Hurricane Milton, which made landfall on Florida’s central west coast before moving across the state in early October, as a key driver of the losses. Earlier in the year, the company had anticipated its strongest earnings quarter of the year in Q4. This anticipated performance included an estimated $57 million impact from Hurricane Milton, comprising $40 million in retained catastrophe losses and a $17 million net reinstatement premium.
Premium Growth and Combined Ratio
Despite the losses, Heritage reported growth in gross written premiums. Gross premiums earned for the fourth quarter reached $360.4 million, a 6.1% increase compared to $339.6 million a year earlier. Net premiums earned also increased, growing 12.1% to $199.3 million, up from $177.7 million.
The company’s net loss ratio increased, reaching 54.7%—a 3.7-point increase from 51.0% the prior year. This increase was primarily due to the catastrophic weather events. The net expense ratio also rose slightly, by 1.1 points, to 35.0%, which contributed to a net combined ratio of 89.7%, a 4.8-point increase compared to 84.9% in 2023.
As of December 31, 2024, Heritage’s book value per share reached $9.50, representing a 30.3% increase from year-end 2023 and an 85.2% increase from its 2022 year-end position.
