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What changed in Heritage Insurance Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Heritage Insurance Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+328 added−252 removedSource: 10-K (2024-03-13) vs 10-K (2023-03-13)

Top changes in Heritage Insurance Holdings, Inc.'s 2023 10-K

328 paragraphs added · 252 removed · 222 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

60 edited+20 added−7 removed59 unchanged
Biggest changeBest Rating S&P Rating Aeolus Re Ltd. collateralized collateralized Allianz Risk Transfer AG (Bermuda Branch) A+ g AA- Allianz Risk Transfer AG (Bermuda Branch) (obo PIMCO) A+ g AA- Allied World Assurance Company, Ltd A g A American Agricultural Insurance Company A NR Arch Reinsurance Limited A+ A+ Arch Reinsurance Limited (obo Quantedge Capital USA Inc) A+ A+ Arch Reinsurance Limited (obo Securis ILS Management Ltd) A+ A+ Ariel Re Bda Limited/Lloyd's Syndicate 1910 A A+ Ariel Re Bda Limited/Lloyd's Syndicate 1969 A A+ Ascot Bermuda Limited A g NR Aspen American Insurance Company A g A- Aspen Bermuda Limited A g A- AXIS Specialty Limited A g A+ Berkley Insurance Company A+ A+ BGS Services (Bermuda) Limited/Lloyd's Syndicate 2987 A A+ Chaucer Insurance Company DAC (Bermuda) A g A Chubb Tempest Reinsurance Ltd.
Biggest changeBest Rating S&P Rating Reinsurer Aeolus Re Ltd./Keystone PF Segregated Account Collateralized Collateralized Aeolus Re Ltd./Keystone PF Segregated Account Collateralized Collateralized Allianz Risk Transfer AG (Bermuda Branch) A+ g AA- Arch Reinsurance Limited A+ A+ Ariel Re Bda Limited/Lloyd's Syndicate 1910 A A+ Chaucer Insurance Company DAC (Bermuda) A g A Chubb Tempest Reinsurance Ltd. A++ AA D.E.
We have also established relationships with auto insurance carriers who package their auto product with our residential property insurance product to provide diversification opportunities. Develop IT Solutions to More Effectively Service our Customers We continuously work to enhance our technology resources in order to better serve our agents and policyholders, streamline our processes and improve efficiency.
We also have established relationships with auto insurance carriers who package their auto product with our residential property insurance product to provide diversification opportunities. Develop IT Solutions to More Effectively Service our Customers We continuously work to enhance our technology resources in order to better serve our agents and policyholders, streamline our processes and improve efficiency.
For consistency, efficiency, and compliance with our underwriting standards, our underwriting process is generally automated with our predetermined criteria programmed into our policy system. Certain policies have characteristics which require an independent review by our underwriters. Our underwriters evaluate and accept only those risks that they believe will enable us to achieve an underwriting profit.
For consistency, efficiency, and compliance with our underwriting standards, our underwriting process is generally automated with predetermined criteria programmed into our policy system. Certain policies have characteristics which require an independent review by our underwriters. Our underwriters evaluate and accept only those risks that they believe will enable us to achieve an underwriting profit.
We are in full compliance with all consent orders. State regulators where we are and may become licensed and offer insurance products conduct periodic examinations of the affairs of insurance companies and require the filing of annual and other reports related to financial condition, holding company issues and other matters.
We are in full compliance with all consent orders. Examinations State regulators where we are and may become licensed and offer insurance products conduct periodic examinations of the affairs of insurance companies and require the filing of annual and other reports related to financial condition, holding company issues and other matters.
These regulations relate to, among other things: • the content and timing of required notices and other policyholder information; • the amount of premiums the insurer may write in relation to its surplus (writing ratios); • the amount and nature of reinsurance a company is required to purchase; • participation in guaranty funds and other statutorily created markets or organizations; • business operations and claims practices; • approval of policy forms and premium rates; • standards of solvency, including risk-based capital measurements; • licensing of insurers and their products; • restrictions on the nature, quality and concentration of investments; • restrictions on the ability of insurance company subsidiaries to pay dividends to insurance holding companies; • approval of and restrictions on transactions between insurance companies and their affiliates; 10 • restrictions on the size of risks insurable under a single policy; • requiring deposits for the benefit of policyholders; • requiring certain methods of accounting; • periodic examinations of our operations and finances; • the form and content of records of financial condition required to be filed; and • requiring reserves.
These regulations relate to, among other things: • the content and timing of required notices and other policyholder information; • the amount of premiums the insurer may write in relation to its surplus (writing ratios); • the amount and nature of reinsurance a company is required to purchase; • participation in guaranty funds and other statutorily created markets or organizations; • business operations and claims practices; • approval of policy forms and premium rates; • standards of solvency, including risk-based capital measurements; • licensing of insurers and their products; • restrictions on the nature, quality and concentration of investments; • restrictions on the ability of insurance company subsidiaries to pay dividends to insurance holding companies; • approval of and restrictions on transactions between insurance companies and their affiliates; • restrictions on the size of risks insurable under a single policy; • requiring deposits for the benefit of policyholders; • requiring certain methods of accounting; • periodic examinations of our operations and finances; • the form and content of records of financial condition required to be filed; and • requiring reserves.
Our Competitive Strengths We believe that our business diversification to date and our ability to capitalize on our future business prospects are a result of the following competitive strengths of our business: 4 Experienced Management Team With a Long History in the Residential Property Insurance Market We have an experienced executive management team led by Ernesto Garateix, Chief Executive Officer, Kirk Lusk, Chief Financial Officer and a highly experienced and diverse senior management team with significant expertise in the residential property insurance industry and deep industry relationships.
Our Competitive Strengths We believe that our business diversification to date and our ability to capitalize on our future business prospects are a result of the following competitive strengths of our business: Experienced Management Team With a Long History in the Residential Property Insurance Market We have an experienced executive management team led by Ernesto Garateix, Chief Executive Officer, Kirk Lusk, Chief Financial Officer and a highly experienced and diverse senior management team with significant expertise in the residential property insurance industry and deep industry relationships.
Further regulatory authorities have relatively broad discretion to impose fines, sanctions, and other penalties, and to deny or revoke licenses for various reasons, including the violation of regulations. In some instances, we follow practices based on our interpretations of regulations or practices that we believe may be generally followed by the industry.
Further, regulatory authorities have relatively broad discretion to impose fines, sanctions, and other penalties, and to deny or revoke licenses for various reasons, including the violation of regulations. In some instances, we follow practices based on our interpretations of regulations or practices that we believe may be generally followed by the insurance industry.
Optimize Our Reinsurance Program We continue to strategically evaluate our reinsurance program to obtain what we believe to be the most appropriate levels and sources of reinsurance, and we trade with high quality reinsurers who are either rated or who collateralize our risk transfer. Our reinsurance program includes excess of loss, quota share, per risk and facultative coverage.
Optimize Our Reinsurance Program We continue to strategically evaluate our reinsurance program to obtain what we believe to be the most appropriate levels and sources of reinsurance, and we trade with high quality reinsurers who are either highly rated or who collateralize our risk transfer program. Our reinsurance program includes excess of loss, quota share, per risk and facultative coverage.
Best”) or Standard & Poor’s Financial Services LLC (“S&P”) or were fully collateralized, and (iii) our captive reinsurance subsidiary, Osprey. We also sponsored catastrophe bonds in 2022 through Citrus Re. In addition to purchasing excess of loss catastrophe reinsurance, we also purchased quota share, property per risk and facultative reinsurance.
Best”) or Standard & Poor’s Financial Services LLC (“S&P”) or were fully collateralized, and (iii) our captive reinsurance subsidiary, Osprey. We also sponsored catastrophe bonds through Citrus Re. In addition to purchasing excess of loss catastrophe reinsurance, we also purchased quota share, property per risk and facultative reinsurance.
Our underwriting team leverages our proprietary data analytics, which include 6 a number of automated processes, to analyze a number of risk evaluation factors, including the age, construction, location and value of the residence, premiums to be received from insuring the residence, geographic concentrations of policies and the cost of reinsurance.
Our underwriting team leverages our proprietary data analytics, which include a number of automated processes, to analyze a number of risk evaluation factors, including the age, construction, location and value of the residence, premiums to be received from insuring the residence, geographic concentrations of policies and the cost of reinsurance.
We intend to improve underwriting results by undertaking the following: Improve the Profitability of our Portfolio We believe that our goal to improve the profitability of our business will be achieved through disciplined underwriting, diversification of our book of business, and rate adequacy, as well as a robust reinsurance program.
We intend to continue to improve underwriting results by undertaking the following: Improve the Profitability of our Portfolio We believe that our goal to improve the profitability of our business will be achieved through disciplined underwriting, diversification of our book of business, and rate adequacy, as well as a robust reinsurance program.
We compete for business on the basis of price, financial strength, types of coverages 5 offered, availability of coverage desired by customers, commission structure and quality of service. We believe Heritage differentiates itself from many competitors with our service levels, financial resources, including a robust reinsurance program, streamlined processes, and vertical integration of loss mitigation and repair services.
We compete for business on the basis of price, financial strength, types of coverages offered, availability of coverage desired by customers, commission structure and quality of service. We believe Heritage differentiates itself from many competitors with our service levels, financial resources, including a robust reinsurance program, streamlined processes, and vertical integration of loss mitigation services.
For each of the twelve months beginning June 1, 2022 and 2021, we purchased reinsurance from the following sources: (i) the Florida Hurricane Catastrophe Fund, a state-mandated catastrophe fund (“FHCF”) for Florida admitted market policies only, (ii) private reinsurers, all of which were rated “A-” or higher by A.M. Best Company, Inc. (“A.M.
For each of the twelve months beginning June 1, 2023 and 2022, we purchased reinsurance from the following sources: (i) the Florida Hurricane Catastrophe Fund, a state-mandated catastrophe fund (“FHCF”) for Florida admitted market policies only, (ii) private reinsurers, all of which were rated “A-” or higher by A.M. Best Company, Inc. (“A.M.
Demotech, a rating agency specializing in evaluating the financial stability of insurers, maintains a letter-scale financial stability rating system (“FSR”) from A’’ (A double prime) to L (licensed by insurance regulatory authorities). KBRA’s ratings assigned to insurance companies ranges from AAA (extremely strong operations to no risk) to R (operating under regulatory supervision).
Demotech, a rating agency specializing in evaluating the financial stability of insurers, maintains a letter-scale financial stability rating system (“FSR”) from A’’ (A double prime) to L (licensed by insurance regulatory authorities). KBRA’s ratings assigned to insurance companies range from AAA (extremely strong operations to no risk) to R (operating under regulatory supervision).
Approximately 50.6% of our premium is written by agents that are affiliated with three large agency networks with which we have entered into master agency agreements. Our Markets The following charts depict the geographic distribution of our in-force premium as of December 31, 2022 and 2021, respectively.
Approximately 50.6% of our premium is written by agents that are affiliated with three large agency networks with which we have entered into master agency agreements. 6 Our Markets The following charts depict the geographic distribution of our in-force premium as of December 31, 2023 and 2022, respectively.
For a discussion and summary of the activity in the liability for losses and LAE for the years ended December 31, 2022, 2021 and 2020, Refer to Note 13 “ Reserve for Unpaid Losses ” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K.
For a discussion and summary of the activity in the liability for losses and LAE for the years ended December 31, 2023, 2022 and 2021, Refer to Note 13 “ Reserve for Unpaid Losses ” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K.
Efficiently Manage Losses and Loss Adjustment Expenses We are committed to proactively managing our loss costs through prudent underwriting and in-sourcing critical aspects of claims adjusting and remediation services. We have over 300 full-time employees dedicated to claims management.
Efficiently Manage Losses and Loss Adjustment Expenses We are committed to proactively managing our loss costs through prudent underwriting and in-sourcing critical aspects of claims adjusting and remediation services. We have over 275 full-time employees dedicated to claims management.
The SEC maintains an Internet website, www.sec.gov that contains reports, proxy and information statements and other information that we file electronically with the SEC. Our principal corporate offices are located at 1401 N. Westshore Blvd., Tampa, Florida, 33607. 12
The SEC maintains an Internet website, www.sec.gov that contains reports, proxy and information statements and other information that we file electronically with the SEC. Our principal corporate offices are located at 1401 N. Westshore Blvd., Tampa, Florida, 33607. 13
Products and Distribution Heritage P&C writes voluntary personal residential insurance policies through a network of more than 2,000 independent agents in the states in which it is licensed. Approximately 28% of our voluntary personal lines policies are written by agents that are affiliated with eight large agency networks with which we have entered into master agency agreements.
Products and Distribution Heritage P&C writes personal residential insurance policies through a network of more than 2,000 independent agents in the states in which it is licensed. Approximately 22.0% of our voluntary personal lines policies are written by agents that are affiliated with eight large agency networks with which we have entered into master agency agreements.
Our quota share programs limit our exposure on catastrophe and non-catastrophe losses and provides ceding commission income. Our per risk programs limit our net exposure in the event of a severe non-catastrophe loss impacting a single location or risk. We also utilize facultative reinsurance to supplement our per risk reinsurance program where our capacity needs dictate.
Our quota share programs limit our exposure to catastrophe and non-catastrophe losses and provide ceding commission income. Our per risk programs limit our net exposure in the event of a severe non-catastrophe loss impacting a single location or risk. We also utilize facultative reinsurance to supplement our per risk reinsurance program where our capacity needs dictate.
Our quota share reinsurance is amortized over the 12-month contract period and may be purchased on a calendar or fiscal year basis. Our insurance regulators require all insurance companies, like us, to have a certain amount of capital and reinsurance coverage in order to cover losses and loss adjustment expenses upon the occurrence of a catastrophic event.
Our quota share, per risk and facultative reinsurance is amortized over the 12-month contract period and may be purchased on a calendar or fiscal year basis. 8 Our insurance regulators require all insurance companies, like us, to have a certain amount of capital and reinsurance coverage in order to cover losses and loss adjustment expenses upon the occurrence of a catastrophic event.
Our data analytics are embedded in the underwriting process and are used for strategic expansion into new product lines and states. Unique Claims Servicing Model and Superior Customer Service We believe that the vertical integration of our claims adjusting, water mitigation, and repair services provides us with a competitive advantage.
Our data analytics are embedded in the underwriting process and are used for new and existing business as well as strategic expansion into new product lines and states. Unique Claims Servicing Model and Superior Customer Service We believe that the vertical integration of our claims adjusting, water mitigation, and repair services provides us with a competitive advantage.
To the extent a reinsurer is not rated, the reinsurance program is fully collateralized. Refer to Note 12 “Reinsurance” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K. Manager / Reinsurers A.M.
To the extent a reinsurer is not rated, the reinsurance program is fully collateralized. Refer to Note 12 “Reinsurance” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K. 9 A.M.
The surplus for each of our insurance subsidiaries is well in excess of the minimum capital levels required by our insurance regulators and Demotech. Selective Underwriting and Policy Acquisition Criteria We believe our proprietary data analytics capabilities and underwriting processes allow us to make better risk selections leading to profitability and high levels of policy retention.
The surplus for each of our insurance subsidiaries is in excess of the minimum capital levels required by our insurance regulators and our ratings agencies. Selective Underwriting and Policy Acquisition Criteria We believe our proprietary data analytics capabilities and underwriting processes allow us to make better risk selections leading to profitability and high levels of policy retention.
Our Florida personal lines in-force premium has declined as part of our strategy to re-allocate capital to products and geographies that maximize long-term returns. * * Other includes CA, DE, GA, MD, MS and VA CGL = commercial general liability CRES = commercial residential insurance PRES = personal residential insurance Underwriting Our management establishes underwriting criteria for policies we accept.
Our in-force premium for Florida commercial residential business has increased, while in-force premium for personal lines has declined as part of our strategy to re-allocate capital to products and geographies that maximize long-term returns. * * Other includes AL, CA, DE, GA, MD, MS and VA CGL = commercial general liability CRES = commercial residential insurance Underwriting Our management establishes underwriting criteria for policies we accept.
In some instances, individual state insurance laws and regulations are even more stringent than those promulgated by the NAIC or other states. We are subject to regulations administered by a department of insurance in each state in which we do business.
In some instances, individual state insurance laws and regulations are even more stringent than those promulgated by the NAIC or other states. We are subject to regulations administered by a department of insurance in our states of domicile as well as in each state in which we conduct business.
For the contract period ending May 31, 2023, our insurance company subsidiaries purchased catastrophe excess of loss reinsurance from the following sources: (i) FHCF (i.e., Florida residential admitted market risks only), (ii) over 50 third-party private reinsurers, all of which were rated “A-” or higher by A.M.
For the contract period ending May 31, 2024, our insurance company subsidiaries purchased an aggregate of $2.9 billion of catastrophe excess of loss reinsurance from the following sources: (i) FHCF (i.e., Florida residential admitted market risks only), (ii) over 30 third-party private reinsurers, all of which were rated “A-” or higher by A.M.
We continue to take underwriting and rate actions to improve the profitability of our business and continuously monitor our portfolio to manage the risk of wind and other perils.
We continue to take underwriting and rate actions to improve the profitability of our business and continuously monitor our portfolio to manage the risk of wind and other perils as well as the cost of our reinsurance program.
We also own or license other technology systems used by our insurance company affiliates. Many of our technology platforms run on cloud-based solutions, and some run on servers hosted in a data center.
We also own or license other technology systems used by our insurance company affiliates. Many of our technology platforms run on cloud-based solutions, and some run on servers hosted in a data center. All of our platforms are resilient and have disaster recovery backups.
A+ g AA- 9 Investments Our investments are managed by third-party asset managers. We have designed our investment policy to provide a balance between current yield, conservation of capital and the liquidity requirements of our operations. As such, our invested assets are primarily held in cash and bonds of high credit quality with relatively short durations.
We have designed our investment policy to provide a balance between current yield, conservation of capital and the liquidity requirements of our operations. As such, our invested assets are primarily held in cash and bonds of high credit quality with relatively short durations.
All of our platforms are resilient and have disaster recovery backups. 7 Reinsurance In order to limit our potential exposure to individual risks and catastrophic events, we purchase significant reinsurance from third party reinsurers. Purchasing reinsurance is an important part of our risk strategy, and premiums ceded to reinsurers is one of our largest costs.
Reinsurance In order to limit our potential exposure to individual risks and catastrophic events, we purchase significant reinsurance from third party reinsurers. Purchasing reinsurance is an important part of our risk strategy, and premiums ceded to reinsurers is one of our largest costs.
Our Strategy Our overall short-term strategy has shifted from growing premiums to rebalancing our portfolio of over $1 billion in gross written premium to optimize our portfolio toward products and geographies that maximize long term returns to our shareholders, while mitigating risk from a single or series of catastrophic weather events.
Our Strategy Our overall strategy continues to focus on optimizing our portfolio of over $1.0 billion in gross premiums written toward products and geographies that maximize long term returns to our shareholders, while mitigating risk from a single or series of catastrophic weather events.
Available Information We make available free of charge on our investor website, investors.heritagepci.com, all materials that we file electronically with the Securities and Exchange Commission (“SEC”), including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after electronically filing such materials with, or furnishing them to, the SEC.
We are committed to the wellness of our employees and our community and as part of that commitment we have volunteer programs to support our local community’s wellness which provides our employees paid time off to volunteer to Heritage-sponsored volunteer opportunities. 12 Available Information We make available free of charge on our investor website, investors.heritagepci.com, all materials that we file electronically with the Securities and Exchange Commission (“SEC”), including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after electronically filing such materials with, or furnishing them to, the SEC.
Our insurance subsidiaries are subject to risk-based capital standards and other minimum capital and surplus requirements imposed under applicable state laws. The risk-based capital standards, based upon the Risk-Based Capital Model Act adopted by the NAIC, require our insurance subsidiaries to report the results of risk-based capital calculations to state regulators and the NAIC.
The risk-based capital standards, based upon the Risk-Based Capital Model Act adopted by the NAIC, require our insurance subsidiaries to report the results of risk-based capital calculations to state regulators and the NAIC.
To encourage our Florida policyholders to allow us to manage their claims from beginning to end, we developed a program that provides participating customers with a 10% discount on their claim deductible, and gives us control over inspection, claims adjusting and repair services.
We believe our approach to claims handling results in a higher level of customer service and reduces our losses and loss adjustment expense. 7 To encourage our Florida policyholders to allow us to manage their claims from beginning to end, we developed a program that provides participating customers with a 10% discount on their claim deductible, and gives us control over inspection, claims adjusting and repair services.
Specifically: • Environment - we are currently focused on becoming more energy efficient, mitigating and adapting to climate change, conserving water and reducing waste. • Social – we have put emphasis on creating an inclusive equal opportunity workplace and inspiring employees to support community relations. • Governance – we are committed in our pursuit to create an ethical and transparent organization.
Specifically: • Environment - we seek to operate our own facilities in a more intelligent, environmentally-friendly manner. We are focused on becoming more energy efficient, mitigating and adapting to climate change, conserving water and reducing waste. • Social – we have put emphasis on creating an inclusive equal opportunity workplace and inspiring employees to support community relations.
We market and write commercial residential policies through a network of approximately 400 independent agents in Florida. NBIC writes personal lines policies through a network of retail independent agents, wholesale agents and a partnership with a large direct agency. We maintain master agency agreements with approximately 500 retail independent agents, representing over 800 agency locations, including several large agency networks.
We market and write commercial residential policies through a network of approximately 400 independent agents in Florida. NBIC writes personal residential insurance policies through a network of retail independent agents, wholesale agents and a partnership with a large direct agency.
These programs are designed to support employees' physical and mental health by providing tools and resources to help them improve or maintain their health status and encourage engagement in healthy behaviors.
We provide our employees with access to a variety of innovative, flexible and convenient health and wellness programs. These programs are designed to support employees' physical and mental health by providing tools and resources to help them improve or maintain their health status and encourage engagement in healthy behaviors.
We conduct our operations under one business and reporting segment. 3 As of December 31, 2022, we had 514,924 personal residential policies in force, representing $1.1 billion of annualized premium, 2,756 commercial residential policies in force, representing $154.6 million of annualized premium, and 12,227 commercial general liability policies in force, representing $11.0 million of annualized premium, for a total of 529,907 policies and $1.3 billion of annualized premium.
We conduct our operations under one business and reporting segment. 3 As of December 31, 2023, we had 436,656 personal residential policies in force, representing $1.1 billion of annualized premium, 2,838 commercial residential policies in force, representing $253.4 million of annualized premium, and 11,181 commercial general liability policies in force, representing $11.0 million of annualized premium, for a total of 450,675 policies and $1.4 billion of annualized premium.
As of December 31, 2022, we held $280.9 million in cash and cash equivalents and $653.6 million in investments, which were comprised of $635.6 million in fixed maturities, $1.5 million in common stock and $16.5 million in other invested assets.
As of December 31, 2023, we held $463.6 million in cash and cash equivalents and $569.4 million in investments, which were comprised of $560.7 million in fixed maturities, $1.7 million in common stock and $7.1 million in other invested assets.
We have made it a priority to transition each of our insurance companies to the same policy and claims system, which provides efficiencies for our personnel as well as our agency networks.
We have made it a priority to use consistent policy and claims systems for our insurance company affiliates, which provides efficiencies for our personnel as well as our agency networks.
Strong, Conservative Capital Structure As of December 31, 2022, we had stockholders’ equity of $131.0 million and Heritage P&C, NBIC and Zephyr, had policyholder surplus, as defined by statutory accounting principles, of $106.7 million, $89.6 million and $80.0 million, respectively.
Strong, Conservative Capital Structure As of December 31, 2023, we had stockholders’ equity of $220.3 million and Heritage P&C, NBIC and Zephyr, had policyholder surplus, as defined by statutory accounting principles, of $143.5 million, $72.3 million and $35.8 million, respectively.
We have forged strategic relationships with national insurers and agencies that provides us access to their agent and production networks. The Products and Distribution section below describes the breadth of our agency network.
We believe we have been able to build this network due to our financial stability, disciplined underwriting, claims and mitigation capabilities, customer service, and robust reinsurance program. We have forged strategic relationships with national insurers and agencies that provides us access to their agent and production networks. The Products and Distribution section below describes the breadth of our agency network.
We also distribute indirectly to over 1,500 retail locations through eight wholesale agency relationships. Our three largest independent agency relationships represent 15.6% of annualized premiums. Additionally, we have expanded our product offering to include commercial residential products in New Jersey and New York. Zephyr writes personal and commercial insurance policies through a network of approximately 70 independent agencies in Hawaii.
Additionally, we have expanded our product offering to include commercial residential products in New Jersey and New York. Zephyr writes personal residential insurance policies through a network of approximately 70 independent agencies in Hawaii.
Our relationships with highly rated reinsurers have been developed as a result of our management team’s industry experience and our reputation for selective underwriting and effective claims management. Our financial strength, underwriting results and the long-term relationships between our management team and our reinsurance partners help improve the cost-effectiveness of our reinsurance program.
Our relationships with highly rated reinsurers have been developed as a result of our management team’s industry experience and our reputation for selective underwriting and effective claims management.
Seasonality of our Business Our insurance business is seasonal; hurricanes typically occur during the period from June 1 through November 30 and winter storms generally impact the first and fourth quarters, while hail and severe convective storms typically occur in the first and second quarters.
Refer to Note 14 “ Long-Term Debt” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K. 10 Seasonality of our Business Our insurance business is seasonal; hurricanes typically occur during the period from June 1 through November 30 and winter storms generally impact the first and fourth quarters, while hail and severe convective storms typically occur in the first and second quarters.
These practices may turn out to be different from the interpretations of regulatory authorities. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or otherwise penalize us.
If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or otherwise penalize us. 11 Our insurance subsidiaries are subject to risk-based capital standards and other minimum capital and surplus requirements imposed under applicable state laws.
Best or S&P or which were fully collateralized, (iii) Osprey Re, our captive reinsurance subsidiary, and (iv) Citrus Re. There is no single reinsurer representing more than 10% of the limit purchased for our program other than the FHCF. 8 The chart below lists our third-party reinsurers with A.M. Best and S&P ratings as of December 31, 2022.
The RAP component of our reinsurance program was provided at no cost to the Company and is a non-recurring reinsurance program. There is no single reinsurer representing more than 10% of the limit purchased for our program other than the FHCF. The chart below lists our third-party reinsurers with A.M. Best and S&P ratings as of December 31, 2023.
The KBRA outlook for Heritage P&C and Zephyr is stable and the KBRA outlook for Heritage Insurance Holdings, Inc. and NBIC is negative. We also provide insurance and insurance-related services through the following operating subsidiaries: • Osprey Re Ltd.
We also provide insurance and insurance-related services through the following operating subsidiaries: • Osprey Re Ltd.
These regulatory authorities also conduct periodic examinations into insurers’ business practices. Additionally, we are subject to assessments levied by governmental and quasi-governmental entities from the states in which we conduct business. Human Capital At December 31, 2022, we had 612 full-time and part-time employees. We do not have collective bargaining agreements relating to any of our associates.
These regulatory authorities also conduct periodic examinations into insurers’ business practices. Additionally, we are subject to assessments levied by governmental and quasi-governmental entities from the states in which we conduct business. Generally, other state regulators defer to the state insurance regulator in our state of domicile.
A++ AA Conduit Reinsurance Limited A- NR D.E. Shaw Re (Bermuda) Ltd., Bermuda collateralized collateralized DUAL Commercial LLC (Tamesis Americas)/Allianz Global Risks US Ins Co A+ g AA Eclipse Re Ltd/Segregated Account EC0035 collateralized collateralized Endurance Specialty Insurance Ltd.
Shaw Re (Bermuda) Ltd., Bermuda Collateralized Collateralized DUAL Commercial LLC (Tamesis Americas)/Allianz Global Risks US Ins Co A+ g AA Eclipse Re Ltd/Segregated Account EC0047 Collateralized Collateralized Everest Reinsurance Company A+ g A+ Fidelis Insurance Bermuda Limited A ug A- Hannover Rueck SE (obo Pillar Capital Management) A+ AA- Hiscox Insurance Company (Bermuda) Limited A g A Insurance Company of the West A p NR Munich Reinsurance America, Inc.
Of the $635.6 million of fixed maturities, $24.3 million of U.S. government agency securities were pledged to the Federal Home Loan Bank (“FHLB”) in connection with a FHLB loan to Heritage P&C. Refer to Note 14 “ Long-Term Debt” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K.
Of the $560.7 million of fixed maturities, $26.3 million of U.S. government agency securities were pledged to the Federal Home Loan Bank (“FHLB”) in connection with a FHLB loan to Heritage P&C.
A+ g AA- Hannover Rueck SE (obo Chard Re) A+ AA- Hannover Rueck SE (obo Eskatos Capital Management) A+ AA- Hannover Rueck SE (obo Pillar Capital Management) A+ AA- Hannover Rueck SE (obo Securis) A+ AA- Harco National Insurance Company A- p NR Hiscox Insurance Company (Bermuda) Limited A g A Houston Casualty Company (UK Branch) A++ g A+ Insurance Company of the West A p NR Lloyd's Syndicate 0033 (HIS) A A+ Lloyd's Syndicate 0626 (IRK) A A+ Lloyd's Syndicate 0727 (SAM) A A+ Lloyd's Syndicate 1084 (CSL) A A+ Lloyd's Syndicate 1301 (IGO) A A+ Lloyd's Syndicate 1414 (ASC) A A+ Lloyd's Syndicate 1729 (DUW) A A+ Lloyd's Syndicate 1856 (IQU) A A+ Lloyd's Syndicate 1947 (GIC) A A+ Lloyd's Syndicate 2623 (AFB) A A+ Lloyd's Syndicate 2791 (MAP) A A+ Lloyd's Syndicate 2987 (BRT) A A+ Lloyd's Syndicate 4020 (ARK) A A+ Lloyd's Syndicate 4444 (CNP) A A+ Lloyd's Syndicate 5886 (WBC) A A+ Munich Reinsurance America, Inc.
A g A+ Conduit Reinsurance Limited A- NR Hannover Rueck SE (obo Chard Re) A+ AA- Hannover Rueck SE (obo Eskatos Capital Management) A+ AA- Houston Casualty Company (UK Branch) A++ g A+ Lloyd's Syndicate 0033 (HIS) A A+ Lloyd's Syndicate 1084 (CSL) A A+ Lloyd's Syndicate 1301 (IGO) A A+ Lloyd's Syndicate 1414 (ASC) A A+ Lloyd's Syndicate 1729 (DUW) A A+ Lloyd's Syndicate 0623 (AFB) A A+ Lloyd's Syndicate 2623 (AFB) A A+ Lloyd's Syndicate 4020 (ARK) A A+ Lloyd's Syndicate 4444 (CNP) A A+ Taiping Reinsurance Company Limited A A Investments Our investments are managed by a third-party asset manager.
Relationships with Independent Agents and National Underwriters We have developed relationships with a large network of independent insurance agents. We have partnerships with certain large retail agencies which amplify our production. We believe we have been able to build this network due to our financial stability, disciplined underwriting, claims and mitigation capabilities, customer service, and robust reinsurance program.
Our financial strength, underwriting results and the long-term relationships between our management team and our reinsurance partners help improve the cost-effectiveness of our reinsurance program. 5 Relationships with Independent Agents and National Underwriters We have developed relationships with a large network of independent insurance agents. We have partnerships with certain large retail agencies which amplify our production.
Demotech and KBRA have assigned the following insurance financial strength ratings (“IFSR”) to our key operating subsidiaries. Subsidiary Demotech Rating KBRA Rating KBRA Investment Rating Heritage P&C A BBB+ N/A Zephyr A' BBB+ N/A NBIC A A- N/A Additionally, KBRA has assigned an investment grade issuer rating to Heritage Insurance Holdings, Inc.
Subsidiary Demotech Rating KBRA Rating KBRA Investment Rating Heritage Insurance Holdings N/A N/A BBB- Heritage P&C A BBB+ N/A Zephyr A' BBB+ N/A NBIC A BBB+ N/A The KBRA outlook for Heritage P&C and NBIC is stable and the KBRA outlook for Heritage Insurance Holdings, Inc. and Zephyr is negative.
As a result of that re-estimation, Heritage has exhausted the private layers of reinsurance specific to Hurricane Irma but has a 45% participation in the FHCF limit remaining. Accordingly, should future re-estimations to Hurricane Irma losses increase the expected loss reserves, a portion of the increase will be retained and a portion will be ceded to the FHCF.
Accordingly, should future re-estimations to Hurricane Irma losses increase the expected loss reserves, all of the increase will be retained.
At December 31, 2022, we had total assets of $2.4 billion and total stockholders’ equity of $131.0 million.
For the year ended December 31, 2023, we had gross premiums written of $1.3 billion and operating income of $63.2 million. At December 31, 2023, we had total assets of $2.2 billion and total stockholders’ equity of $220.3 million.
A+ g AA- SCOR Reinsurance Company A+ g A+ SiriusPoint America Insurance A- g A- SiriusPoint Bermuda Insurance Company Ltd.
A+ g AA- Odyssey Reinsurance Company A A Swiss Reinsurance America Corporation A+ g AA- Transatlantic Reinsurance Company A++ AA+ Validus Reinsurance, Ltd.
Our employees are our most valuable asset, and we are committed to building a workforce that supports each employee’s unique professional journey. We believe having an inclusive work environment, which not only drives engagement but fosters innovation, is critical to driving growth.
We believe having an inclusive work environment, which not only drives engagement but fosters innovation, is critical to driving growth. Our business results depend in part on our ability to successfully manage our human capital resources, including attracting, identifying and retaining key talent.
Our CAN subsidiary performs both catastrophe and non-catastrophe related repair and remediation services. We believe our approach to claims handling results in a higher level of customer service and reduces our losses and loss adjustment expense.
Our CAN subsidiary performs both catastrophe and non-catastrophe related repair and remediation services.
Removed
For the year ended December 31, 2022, we had gross premiums written of $1.3 billion and an operating loss of $157.4 million. The operating loss for the year ended December 31, 2022 included a non-cash, mostly non-deductible goodwill impairment charge of $92.0 million.
Added
Demotech and KBRA have assigned the following insurance financial strength ratings (“IFSR”) to the Company and our key operating subsidiaries.
Removed
A+ g A+ Everest Reinsurance Company A+ g A+ Fidelis Insurance Bermuda Limited A ug A- Fidelis Underwriting Limited A ug A- Fubon Insurance Co., Ltd. A u A- General Insurance Corporation of India B++ NR Hannover Re (Bermuda), Ltd.
Added
We completed a transition to a new claims system used by each of our insurance company subsidiaries during 2023 and are transitioning to a new policy and billing system which is expected to be completed by 2025.
Removed
A+ g AA- Nautical Management Ltd on behalf of Syndicate 2357 A A Nautical Management Ltd./Markel Bermuda Limited A A Odyssey Reinsurance Company A A Partner Reinsurance Company Limited (Marilla Distribution Platform) A+ g A+ Prospero Re Ltd. collateralized collateralized Renaissance Reinsurance Ltd. A+ A+ Satec Srl/New Reinsurance Company Ltd.
Added
Privacy and Cybersecurity Regulations and Oversight We are subject to numerous federal and state insurance regulations that impose significant requirements and standards for protecting personally identified information of insurance company policyholders, employee and other individuals. 4 Federal Regulation The federal Gramm-Leach-Bliley Act ("GBLA") requires financial institutions, including insurers, to protect the privacy of non-public information, to restrict use of such information and disclosure to non-affiliated third parties, and to provide notices to customers regarding use of their non-public personal information and an opportunity to “opt out” of certain disclosures.
Removed
A- g A- Swiss Reinsurance America Corporation A+ g AA- Swiss Reinsurance America Corporation (Marilla Distribution Platform) A+ g AA- Taiping Reinsurance Company Limited A A The Cincinnati Insurance Company A+ A+ Topsail Re collateralized collateralized Transatlantic Reinsurance Company A++ AA+ Validus Reinsurance, Ltd. A g A+ Vantage Risk Ltd. A- g NR XL Reinsurance America Inc.
Added
State departments of insurance and certain federal agencies adopted implementing regulations as required by federal law. In addition, SEC rules require disclosure regarding cybersecurity oversight and incidents. State Laws and Regulations For the past few years, state insurance regulators have focused increasing attention on cybersecurity.
Removed
Our business results depend in part on our ability to successfully manage our human capital resources, including attracting, identifying and retaining key talent. We provide all employees a wide range of professional development experiences, both formal and informal. Our formal offerings include leadership development experiences, vocational training, and a certification program.
Added
As an example, insurance companies are required to maintain a cybersecurity program, incident response plan and information technology system safeguards that protect customer information under extensive cybersecurity regulations implemented by the NY Department of Financial Services and statutes adopted by a number of states based on a model data security law adopted by the National Association of Insurance Commissioners (“NAIC”).
Removed
Most training and courses are delivered virtually. 11 We are committed to the health and safety of our employees, which is critical to our success. We provide our employees with access to a variety of innovative, flexible and convenient health and wellness programs.
Added
In addition, state insurance regulators focus significant attention on data security during financial exams, and the NAIC has strengthened and enhanced the cybersecurity guidance included in its handbook for state insurance examiners. Additional state laws outside of the insurance industry impose notification requirements in the event of cybersecurity breaches affecting their residents.
Removed
We are committed to the wellness of our employees and our community and as part of that commitment we have volunteer programs to support our local community’s wellness which provides our employees paid time to volunteer to Heritage-sponsored volunteer opportunities.
Added
On the privacy front, we anticipate continued focus on new regulatory and legislative proposals at the state and federal levels that may further regulate practices regarding privacy and security of personal information. However, we note that in many instances we will be exempt from comprehensive state privacy laws as a financial institution regulated under the GBLA.
Added
We continue to assess the applicability of this exemption to the Company in light of our operations so as to stay vigilant of new compliance requirements under applicable privacy laws.
Added
Our goals are to ensure that all employees feel valued, respected and accepted for their contributions regardless of their race, sex, religion, ethnicity, age, gender identity, disabilities, national origin, sexual orientation, or other unique characteristics. • Governance – we are committed in our pursuit to create an ethical and transparent organization.
Added
We maintain master agency agreements with approximately 500 retail independent agents, representing over 800 agency locations, including several large agency networks. We also distribute indirectly to over 1,500 retail locations through eight wholesale agency relationships. Our three largest independent agency relationships represent approximately 16.0% of annualized premiums.
Added
As a result of that re-estimation, Heritage exhausted the private layers of reinsurance specific to Hurricane Irma but had a 45% participation in the FHCF limit remaining. As further described in Note 13 Reserve for Losses, the Company's 2017 reinsurance agreement with the FHCF was commuted during the third quarter of 2023.
Added
This commutation process resulted in a final determination of and payment for known, unknown or unreported claims relating to Hurricane Irma. The final amount paid by the FHCF could vary from the Company’s future estimation of losses to have been recovered from the FHCF.
Added
Best or S&P or which were fully collateralized, (iii) Osprey, our captive reinsurance subsidiary, and (iv) Citrus Re, a Bermuda special purpose insurer formed in 2014 (“Citrus Re”). For the 2023 hurricane season, we also obtained reinsurance from the Florida State Board of Administration's Reinsurance to assist Policyholders ("RAP") program which provide reinsurance for Florida admitted policies only.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

54 edited+12 added−4 removed156 unchanged
Biggest changeOur ability to successfully perform these tasks, and as a result price our products accurately, is subject to a number of risks and uncertainties, some of which are outside our control, including: • the availability of sufficient reliable data and our ability to properly analyze available data; • regulatory delays in approving filed rate changes; • the uncertainties that inherently characterize estimates and assumptions; • our selection and application of appropriate rating and pricing techniques; • changes in legal standards, claim resolution practices, and restoration costs; and • legislatively imposed consumer initiatives.
Biggest changeOur ability to successfully perform these tasks, and as a result price our products accurately, is subject to a number of risks and uncertainties, some of which are outside our control, including: • the availability of sufficient reliable data and our ability to properly analyze available data; • regulatory delays in approving filed rate changes; • the uncertainties that inherently characterize estimates and assumptions; • inflationary pressures on labor and materials, including supply chain disruptions; • our ability to stay competitive as evolving competitive technologies emerge such as artificial intelligence (“AI”) and machine learning to make pricing, underwriting, or other decisions; • our selection and application of appropriate rating and pricing techniques; • the effect of climate change on frequency and severity of insured events from severe weather; • changes in legal standards, claim resolution practices, and restoration costs; and • legislatively imposed consumer initiatives In addition, we could underprice risks, which would negatively affect our profit margins.
The provisions in such certificate of incorporation and bylaws include, among other things, the following: • the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms, including preferences and voting rights, of those shares without stockholder approval; • stockholder action can only be taken at a special or regular meeting and not by written consent; • advance notice procedures for nominating candidates to our board of directors or presenting matters at stockholder meetings; and • allowing only our board of directors to fill vacancies on our board of directors.
The provisions in such certificate of incorporation and bylaws include, among other things, the following: • the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms, including preferences and voting rights, of those shares without stockholder approval; 23 • stockholder action can only be taken at a special or regular meeting and not by written consent; • advance notice procedures for nominating candidates to our board of directors or presenting matters at stockholder meetings; and • allowing only our board of directors to fill vacancies on our board of directors.
Although we have paid dividends on our common stock in the past, the declaration and payment of dividends will be at the discretion of our board of directors and will depend on our profits, financial requirements and other factors, such as restrictions under 21 our credit facilities, which limit our ability to pay dividends, and other legal and regulatory restrictions on the payment of dividends, our overall business condition and other elements our board of directors considers relevant.
Although we have paid dividends on our common stock in the past, the declaration and payment of dividends will be at the discretion of our board of directors and will depend on our profits, financial requirements and other factors, such as restrictions under our credit facilities, which limit our ability to pay dividends, and other legal and regulatory restrictions on the payment of dividends, our overall business condition and other elements our board of directors considers relevant.
If actual renewals do not meet expectations or if we choose not to write on a renewal basis because of pricing conditions, our premiums written in future years and our future operations would be materially adversely affected, and we may purchase reinsurance beyond what we believe is the most appropriate level.
If actual renewals do not meet expectations or if we 18 choose not to write on a renewal basis because of pricing conditions, our premiums written in future years and our future operations would be materially adversely affected, and we may purchase reinsurance beyond what we believe is the most appropriate level.
Further, regulatory authorities have relatively broad discretion to deny or revoke licenses for various reasons, including the violation of regulations. In some instances, we follow practices based on our interpretations of regulations or practices that we believe may be generally followed by the industry. These practices may turn out to be different from the interpretations of regulatory authorities.
Further, regulatory authorities have relatively broad discretion to deny or revoke licenses for various reasons, including the violation of regulations. In some instances, we follow practices based on our interpretations of regulations or practices that we believe may be generally followed by the insurance industry. These practices may turn out to be different from the interpretations of regulatory authorities.
As a result, the impact of possible future assessments on our balance sheet, results of operations or cash flow are indeterminable at this time. Risks Relating to Financing Our variable rate indebtedness subjects us to interest rate risk, which could cause our annual debt service obligations to increase significantly.
As a result, the impact of possible future assessments on our balance sheet, results of operations or cash flow are indeterminable at this time. 22 Risks Relating to Financing Our variable rate indebtedness subjects us to interest rate risk, which could cause our annual debt service obligations to increase significantly.
If we do not have the requisite licenses and approvals or do not comply 19 with applicable regulatory requirements, insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or otherwise penalize us. This could adversely affect our ability to operate our business.
If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or otherwise penalize us. This could adversely affect our ability to operate our business.
Our future growth and future capital requirements will depend on the number of insurance policies we write, the kinds of insurance products we offer, the geographic markets in which we do business and, to the extent part of our business strategy in the 17 future, policy and/or geographic expansion, all balanced by the business risks we choose to assume and cede.
Our future growth and future capital requirements will depend on the number of insurance policies we write, the kinds of insurance products we offer, the geographic markets in which we do business and, to the extent part of our business strategy in the future, policy and/or geographic expansion, all balanced by the business risks we choose to assume and cede.
Fluctuating interest rates and other economic factors make it impossible to estimate accurately the amount of investment income that will be realized. In fact, we may realize losses on our investments. The effects of emerging claim and coverage issues on our business are uncertain.
Fluctuating interest rates and other economic factors make it impossible to estimate accurately the amount of investment income that will be realized. In fact, we may realize losses on our investments. 19 The effects of emerging claim and coverage issues on our business are uncertain.
Regulation limiting rate increases and requiring us to participate in loss sharing may decrease our profitability. 20 From time to time, political dispositions affect the insurance market, including efforts to effectively suppress rates at a level that may not allow us to reach targeted levels of profitability.
Regulation limiting rate increases and requiring us to participate in loss sharing may decrease our profitability. From time to time, political dispositions affect the insurance market, including efforts to effectively suppress rates at a level that may not allow us to reach targeted levels of profitability.
Such external factors and requirements may increase our costs and potentially affect the speed with which we will be able to re-allocate capital among our portfolio of policies. There can be no assurance that we will be successful in deploying this strategy.
Such 17 external factors and requirements may increase our costs and potentially affect the speed with which we will be able to re-allocate capital among our portfolio of policies. There can be no assurance that we will be successful in deploying this strategy.
General Risk Factors Our information technology systems, or those of our key service providers, may fail or suffer a loss of security which could adversely affect our business. Our insurance business is highly dependent upon the successful and uninterrupted functioning of our computer and data processing systems.
General Risk Factors Our information technology systems, or those of our key service providers, may fail or suffer a loss of security which could adversely affect our business. 24 Our insurance business is highly dependent upon the successful and uninterrupted functioning of our computer and data processing systems.
The Florida legislature enacted several reform bills in the last three years with the intention to limit AOB and frivolous litigation. There can be no assurance that this new legislation will reduce the future impact of AOB or litigated claims practices.
The Florida legislature enacted several reform bills in the last several years with the intention to limit AOB and frivolous litigation. There can be no assurance that this new legislation will reduce the future impact of AOB or litigated claims practices.
We utilize a number of strategies to mitigate our risk exposure including: • employing proper underwriting processes; • carefully evaluating the terms and conditions of our policies; 18 • geographic diversification; and • ceding insurance risk to reinsurance companies. However, there are inherent limitations in these strategies.
We utilize a number of strategies to mitigate our risk exposure including: • employing proper underwriting processes; • carefully evaluating the terms and conditions of our policies; • geographic diversification; and • ceding insurance risk to reinsurance companies. However, there are inherent limitations in these strategies.
Insurance holding company regulations generally provide that transactions between an insurance company and its affiliates must be fair and reasonable and must be clearly and accurately disclosed in the records of the respective parties, with expenses and payments allocated between the parties in accordance with customary accounting practices.
Insurance holding company regulations generally provide that transactions between an insurance company and its affiliates must be fair and reasonable and must be clearly and accurately disclosed in the records of the respective 20 parties, with expenses and payments allocated between the parties in accordance with customary accounting practices.
The unexpected loss of key employees in any of our could have a material adverse impact on our business because of the loss of such skills, knowledge of our products and years of industry experience. Item 1B. Unresolve d Staff Comments None 24
The unexpected loss of key employees in any of our could have a material adverse impact on our business because of the loss of such skills, knowledge of our products and years of industry experience. Item 1B. Unresolve d Staff Comments None
Our stock price in recent years has been volatile and is likely to continue to be volatile, which may impact the value of stock held by investors. 22 The market price of our common stock has experienced, and may continue to experience, significant volatility from time to time.
Our stock price in recent years has been volatile and is likely to continue to be volatile, which may impact the value of stock held by investors. The market price of our common stock has experienced, and may continue to experience, significant volatility from time to time.
We anticipate that claims arising from future events may require the establishment of substantial reserves from time to time. Reinsurance coverage may not be available to us in the future at commercially reasonable rates or at all.
We anticipate that claims arising from future events may require the establishment of substantial reserves from time to time. 15 Reinsurance coverage may not be available to us in the future at commercially reasonable rates or at all.
Competitive pressures coupled with market conditions may affect our rate of premium growth and financial results. 15 In addition, industry developments could further increase competition in our industry.
Competitive pressures coupled with market conditions may affect our rate of premium growth and financial results. In addition, industry developments could further increase competition in our industry.
Furthermore, we rely on encryption and authentication technology to provide security and authentication to effectively secure transmission of confidential information, including customer bank account, credit card information and other personal information. 23 However, there is no guarantee that these systems or processes will address all of the cyber threats that continue to evolve.
Furthermore, we rely on encryption and authentication technology to provide security and authentication to secure transmission of confidential information, including customer bank account, credit card information and other personal information. However, there is no guarantee that these systems or processes will address all of the cyber threats that continue to evolve.
Frequent technological changes, new products and services and evolving industry standards are all influencing the insurance business. We believe that the development and implementation of new technologies will require additional investment of our capital resources in the future.
The development and implementation of new technologies will require an additional investment of our capital resources in the future. 25 Frequent technological changes, new products and services and evolving industry standards are all influencing the insurance business. We believe that the development and implementation of new technologies will require additional investment of our capital resources in the future.
In total, for the period from June 1, 2022 through May 31, 2023, we have purchased an aggregate limit of $3.2 billion of catastrophe reinsurance coverage for Heritage 13 P&C, Zephyr, and NBIC, for multiple catastrophic events. Our ability to access this coverage, however, is subject to the severity and frequency of such events.
In total, for the period from June 1, 2022 through May 31, 2023, we have purchased an aggregate limit of $2.9 billion of catastrophe reinsurance coverage for Heritage P&C, Zephyr, and NBIC, for multiple catastrophic events. Our ability to access this coverage, however, is subject to the severity and frequency of such events.
As of December 31, 2022, nearly all of our premium in force related to business in coastal states, which are especially subject to adverse weather conditions such as hurricanes, tropical storms, earthquakes, and winter storms.
As of December 31, 2023, nearly all of our premium in force related to business in coastal states, which are especially subject to adverse weather conditions such as hurricanes, tropical storms, earthquakes, and winter storms.
These developments could include: • an influx of new capital in the marketplace as existing companies attempt to expand their businesses and new companies attempt to enter the insurance business as a result of better premium pricing and/or policy terms; • an increase in programs in which state-sponsored entities provide property insurance in catastrophe-prone areas; • changes in state regulatory climates; and • the passage of federal proposals for an optional federal charter that would allow some competing insurers to operate under regulations different or less stringent than those applicable to us.
These developments could include: • an influx of new capital in the marketplace as existing companies attempt to expand their businesses and new companies attempt to enter the insurance business as a result of better premium pricing and/or policy terms; • an increase in programs in which state-sponsored entities provide property insurance in catastrophe-prone areas; • changes in state regulatory climates; and • the passage of federal proposals for an optional federal charter that would allow some competing insurers to operate under regulations different or less stringent than those applicable to us. • technological changes also present competitive risks.
We write personal and commercial insurance policies through a network of independent agents. Our southeastern personal residential insurance policies are written through a network of more than 2,000 independent agents. Approximately 28% of our voluntary personal lines policies are written by agents that are affiliated with eight large agency networks with which we have entered into master agency agreements.
We write personal and commercial insurance policies through a network of independent agents. Our southeastern personal residential insurance policies are written through a network of more than 2,000 independent agents. Approximately 22.0% of our voluntary personal lines policies are written by agents that are affiliated with eight large agency networks with which we have entered into master agency agreements.
These and other aspects of the political environment in jurisdictions where we operate may reduce our profitability, limit our growth, or otherwise adversely affect our operations. During the past several years, various regulatory and legislative bodies have adopted or proposed new laws or regulations to address the cyclical nature of the insurance industry, catastrophic events and insurance capacity and pricing.
These and other aspects of the political environment in jurisdictions where we operate may reduce our profitability, limit our growth, or otherwise adversely affect our operations. Various regulatory and legislative bodies have adopted or proposed new laws or regulations to address the cyclical nature of the insurance industry, catastrophic events and insurance capacity and pricing.
Therefore, investors who purchase our common stock may only realize a return on their investment if the value of our common stock appreciates. We depend on the ability of our subsidiaries to generate and transfer funds to meet debt obligations and to make dividend payments. We do not have significant revenue generating operations of our own.
Therefore, investors who purchase our common stock may only realize a return on their investment if the value of our common stock appreciates. We depend on the ability of our subsidiaries to generate and transfer funds to meet debt obligations and to make dividend payments. We do not have significant revenue generating operations at the parent company.
At December 31, 2022, approximately 97% of our total investments was invested in fixed-maturity securities. We may, under certain circumstances, be required to liquidate our investments in securities at prices below book value, which may adversely affect our financial results. This risk could be amplified in periods of rising interest rates.
At December 31, 2023, approximately 98% of our total investments was invested in fixed-maturity securities. We may, under certain circumstances, be required to liquidate our investments in securities at prices below book value, which may adversely affect our financial results. This risk could be amplified in periods of rising interest rates.
We have not determined, however, the amount of resources and the time that this development and implementation may require, which may result in short-term, unexpected interruptions to our business, or may result in a competitive disadvantage in price and/or efficiency, as we endeavor to develop or implement new technologies. We do not have significant redundancy in our operations.
We have not determined, however, the amount of resources and the time that this development and implementation may require, which may result in short-term, unexpected interruptions to our business, or may result in a competitive disadvantage in price and/or efficiency, as we endeavor to develop or implement new technologies.
Despite system redundancy, our security measures and disaster recovery plan for our internal information technology may not be effective. Our systems are vulnerable to damage from a number of sources, including energy blackouts, natural disasters and other catastrophic events, terrorism, war, telecommunication failures and malicious software programs or cyber security attacks.
We do not have significant redundancy in our operations. Despite system redundancy, our security measures and disaster recovery plan for our internal information technology may not be effective. Our systems are vulnerable to damage from a number of sources, including energy blackouts, natural disasters and other catastrophic events, terrorism, war, telecommunication failures and malicious software programs or cyber security attacks.
The inherent uncertainty of models and our reliance on such models as a tool to evaluate risk may have an adverse effect on our financial results. We license analytic and modeling software from third parties to facilitate our pricing, assess our risk exposure and determine our reinsurance needs.
The inherent uncertainty of models and our reliance on such models as a tool to evaluate risk may have an adverse effect on our financial results. Along with other insurers in the industry, we license analytic and modeling software from third parties to facilitate our pricing, assess our risk exposure and determine our reinsurance needs.
Many factors could affect the ability of our claims department to effectively manage claims by our policyholders, including: • the accuracy of our adjusters as they make their assessments and submit their estimates of damages; • the training, background and experience of our claim’s representatives; • the ability of our claims department to ensure consistent claims handling; • the ability of our claims department to translate the information provided by adjusters into acceptable claims resolutions; and • the ability of our claims department to maintain and update its claims handling procedures and systems as they evolve over time based on claims and geographical trends in claims reporting.
Many factors could affect the ability of our claims department to effectively manage claims by our policyholders, including: • the accuracy of our adjusters as they make their assessments and submit their estimates of damages; • the training, background and experience of our claim’s representatives; • the ability of our claims department to ensure consistent claims handling; • the ability of our claims department to translate the information provided by adjusters into acceptable claims resolutions; • the availability and timing of information from, and the overall degree of cooperation or lack thereof by, policyholders and their representatives; and • the ability of our claims department to maintain and update its claims handling procedures and systems as they evolve over time based on claims and geographical trends in claims reporting.
Our customers provide personal information that we store and maintain in our data warehouse and policy and claims systems. We have implemented systems and processes to protect against unauthorized access to or use of such personal information, but there is no guarantee that these procedures are adequate to safeguard against all security breaches or misuse of the information.
Our customers provide personal information that we store and maintain in our data warehouse and policy and claims systems. We have implemented systems and processes to protect against unauthorized access to or use of such personal information, but there is no guarantee that these procedures can prevent any security breaches or misuse of the information.
In addition, we could underprice risks, which would negatively affect our profit margins. We could also overprice risks, which could reduce the number of policies we write and our competitiveness. In either event, our profitability could be materially and adversely affected. Our results of operations may fluctuate significantly based on industry factors.
We could also overprice risks, which could reduce the number of policies we write and our competitiveness. In either event, our profitability could be materially and adversely affected. Our results of operations may fluctuate significantly based on industry factors.
As of December 31, 2022, our insurance subsidiaries each maintained a risk-based capital ratio of over 300% and complied with the requirement of our state regulators. Our subsidiary, HPCI, has agreed to continue to maintain a risk-based capital ratio of at least 300%. Our subsidiary, NBIC, has agreed to maintain a risk-based capital ratio requirement of 350%.
As of December 31, 2023, our insurance subsidiaries each maintained a risk-based capital ratio of over 300% and complied with the requirement of our state regulators. Our subsidiary, Heritage P&C, has agreed to continue to maintain a risk-based capital ratio of at least 300%.
As a result, we may determine to increase the amount of risk we retain or look for other alternatives to reinsurance, which could in turn have a material adverse effect on our financial position, results of operations and cash flows.
As a result, we may determine to increase the amount of risk we retain or look for other alternatives to reinsurance, which could in turn have a material adverse effect on our financial position, results of operations and cash flows. We may not be able to collect reinsurance amounts due to us from the reinsurers with which we have contracted.
Our revenues and operating performance will fluctuate due to statutorily approved assessments that support property and casualty insurance pools and associations. We operate in a regulatory environment where certain entities and organizations have the authority to require us to participate in assessments.
Our operating results and financial condition could be adversely affected by any of these factors. Our revenues and operating performance will fluctuate due to statutorily approved assessments that support property and casualty insurance pools and associations. We operate in a regulatory environment where certain entities and organizations have the authority to require us to participate in assessments.
The cost and operational consequences of implementing additional data protection measures either as a response to specific breaches or as a result of evolving changes in technology or risks, could be significant and negatively affect our business. The development and implementation of new technologies will require an additional investment of our capital resources in the future.
The cost and operational consequences of implementing additional data protection measures either as a response to specific breaches or as a result of evolving changes in technology or risks, could be significant and negatively affect our business.
The cost of reinsurance is subject to prevailing market conditions beyond our control such as the amount of capital in the reinsurance market, as well as the frequency and magnitude of natural and man-made catastrophes.
The cost of reinsurance is subject to prevailing market conditions beyond our control such as the amount of capital in the reinsurance market, public policy decisions and the expiration of time-limited governmental programs such as the RAP program, as well as the frequency and magnitude of natural and man-made catastrophes.
Such acts may affect our ability to obtain approval for rate changes that may be required to attain rate adequacy along with targeted levels of profitability and returns on equity. Our ability to afford reinsurance required to reduce our catastrophe risk may be dependent upon the ability to adjust rates for our cost.
Such acts may affect our ability to obtain approval for rate changes that may be required to attain rate adequacy along with targeted levels of profitability and returns on equity.
We market and write commercial residential policies through a network of approximately 400 independent agents in Florida. Of our network of approximately 500 retail independent agents for business in the northeastern U.S., our three largest relationships represent approximately $79.0 million in annualized premiums.
We market and write commercial residential policies through a network of approximately 400 independent agents in Florida. Of our network of approximately 500 retail independent agents for business in the northeastern U.S., our three largest relationships represent approximately 16% of annualized premiums. Of our network of approximately 70 Hawaiian independent agencies, approximately 50% are affiliated with three large multi-producer agencies.
Due to inflationary pressures on the U.S. economy and governmental action to combat inflation, interest rates increased during 2022 and it appears likely that interest rates will continue to increase during 2023, which may decrease our net income and cash flows. Our credit agreement contains restrictions that can limit our flexibility in operating our business.
Due to inflationary pressures on the U.S. economy and governmental action to combat inflation, interest rates have been above recent historical levels, which may decrease our net income and cash flows. Our credit agreement contains restrictions that can limit our flexibility in operating our business.
Of our network of approximately 70 Hawaiian independent agencies, approximately 50.6% are affiliated with three large multi-producer agencies. Our strategic focus is to improve the underwriting performance of our policies throughout the states in which we are licensed, which will further increase our reliance on our network of independent agents.
Our strategic focus is to improve the underwriting performance of our policies throughout the states in which we are licensed, which will further increase our reliance on our network of independent agents.
As a result, we must compete with other insurers for independent agents’ business. Our competitors may offer a greater variety of insurance products, lower premiums for insurance coverage, or higher 16 commissions to their agents.
As a result, we must compete with other insurers for independent agents’ business. Our competitors may offer a greater variety of insurance products, lower premiums for insurance coverage, or higher commissions to their agents. If our products, pricing and commissions do not remain competitive, we may find it more difficult to attract business from independent agents to sell our products.
In addition, our insurance subsidiaries are required to maintain certain minimum capital and surplus and to limit its written premiums to specified multiples of its capital and surplus. Our insurance subsidiaries could exceed these ratios if their volume increases faster than anticipated or if their surplus declines due to catastrophe or non-catastrophe losses or excessive underwriting and operational expenses.
Our insurance subsidiaries could exceed these ratios if their volume increases faster than anticipated or if their surplus declines due to catastrophe or non-catastrophe losses or excessive underwriting and operational expenses.
These developments and others could make the property and casualty insurance marketplace more competitive by increasing the supply of insurance available. If competition limits our ability to write new business at adequate rates, our future results of operations would be adversely affected. We may not be able to effectively integrate newly acquired businesses or achieve expected profitability from acquisitions.
If competition limits our ability to write new business at adequate rates, our future results of operations would be adversely affected. We may not be able to effectively integrate newly acquired businesses or achieve expected profitability from acquisitions. We have in the past and may in the future expand through the acquisition of complementary businesses.
We rely on our information technology systems for the effective operation of our business and for the secure maintenance and storage of confidential data relating to our business and for our policyholders.
We rely on our information technology systems for the effective operation of our business and for the secure maintenance and storage of confidential data relating to our business and for our policyholders. Cybersecurity risks could include breaches of systems resulting in compromised data including personally identifiable customer information or other proprietary or confidential information.
We rely on our claims department and any outsourced claims resources to facilitate and oversee the claims adjustment process for our policyholders.
The failure of our claims department to effectively manage or remediate claims could adversely affect our insurance business, financial results and capital requirements. We rely on our claims department and any outsourced claims resources to facilitate and oversee the claims adjustment process for our policyholders.
We have in the past and may in the future expand through the acquisition of complementary businesses. This could occur through an acquisition of a company or a portion of a company’s business.
This could occur through an acquisition of a company or a portion of a company’s business.
To the extent that our reinsurers are unable to meet the obligations they assume under our reinsurance agreements, we remain liable for the entire insured loss. We use reinsurance arrangements to significantly limit and manage the amount of risk we retain, to stabilize our underwriting results, and to increase our underwriting capacity.
We use reinsurance arrangements to significantly limit and manage the amount of risk we retain, to stabilize our underwriting results, and to increase our underwriting capacity.
We may not be able to collect reinsurance amounts due to us from the reinsurers with which we have contracted. 14 Reinsurance is a method of transferring part of an insurance company’s risk under an insurance policy to another insurance company.
Reinsurance is a method of transferring part of an insurance company’s risk under an insurance policy to another insurance company. To the extent that our reinsurers are unable to meet the obligations they assume under our reinsurance agreements, we remain liable for the entire insured loss.
Additionally, we are required to participate in guaranty funds for insolvent insurance companies. The funds periodically assess losses against all insurance companies doing business in the state. Our operating results and financial condition could be adversely affected by any of these factors.
Moreover, when state regulations allow us to implement rate changes while filings are pending, we risk having to refund premiums if the implemented changes are greater than those ultimately approved. Additionally, we are required to participate in guaranty funds for insolvent insurance companies. The funds periodically assess losses against all insurance companies doing business in the state.
Given the inherent uncertainty of modeling techniques and the application of such techniques, these models and databases may not accurately address the emergence of a variety of matters which might impact our exposure to losses.
Given the inherent uncertainty of modeling techniques and the application of such techniques, these models have limitations with respect to their usefulness in predicting losses in any reporting period.
As a result of that re-estimation, Heritage has exhausted the private layers of reinsurance specific to Hurricane Irma but has a 45% participation in the FHCF limit remaining Accordingly, should future re-estimations to Hurricane Irma losses increase the expected loss reserves, a portion of the increase will be retained and a portion will be ceded to the FHCF.
The final amount paid by the FHCF could vary from the 14 Company’s future estimation of losses to have been recovered from the FHCF. Accordingly, should future re-estimations to Hurricane Irma losses increase the expected loss reserves, all of the increase would be retained.
Removed
In the fourth quarter of 2022 we re-estimated our ultimate losses for Hurricane Irma, which struck Florida in 2017.
Added
As further described in Note 13 Reserve for Losses, the Company's 2017 reinsurance agreement with the FHCF was commuted during the third quarter of 2023. This commutation process resulted in a final determination of and payment for known, unknown or unreported claims relating to Hurricane Irma.
Removed
If these models understate the exposures we are assuming, we may not properly assess the risk and we may make poor decisions relating to pricing, underwriting, and the related amount of reinsurance we purchase. As a result, our financial results may be adversely impacted, perhaps significantly.
Added
Examples of these limitations include significant variations in estimates between models and modelers and material increases and decreases in model results due to changes and refinements of the underlying data elements and assumptions, including with respect to the risks arising from climate change, social inflation or other factors.
Removed
If our products, pricing and commissions do not remain competitive, we may find it more difficult to attract business from independent agents to sell our products. The failure of our claims department to effectively manage or remediate claims could adversely affect our insurance business, financial results and capital requirements.
Added
Such limitations may lead to questionable predictive capability and post-event measurements that have not been well understood or proven to be sufficiently reliable.
Removed
For example, during the first quarter of 2021, we experienced a cyber intrusion on certain of our information technology systems.
Added
In addition, the models are not necessarily reflective of company or state-specific policy language, demand surge for labor and materials, consumer behavior, prevailing or changing claims, legal and litigation environments, or loss settlement expenses, all of which are subject to wide variation by catastrophe.
Added
Further, in accordance with laws and regulatory requirements in various states in which we conduct 16 business, we may be required to use a model that has been reviewed and deemed acceptable by a particular state in accordance with standards over which we have no control and that might not align with our business.
Added
For example, our competitive position could be impacted if we are unable to effectively deploy technology such as AI and machine learning that collects and analyzes a wide variety of data points to make underwriting or other decisions, or if our competitors collect and use data we do not have the ability to access or use.
Added
In addition, telematics and other usage-based methods of determining premiums can impact product design and pricing and are becoming an increasingly important competitive factor. Furthermore, state insurance regulators could have input on usage of AI and machine learning. These developments and others could make the property and casualty insurance marketplace more competitive by increasing the supply of insurance available.
Added
Our subsidiary, NBIC, has agreed to maintain a risk-based capital ratio requirement of 325%. 21 In addition, our insurance subsidiaries are required to maintain certain minimum capital and surplus and to limit its written premiums to specified multiples of its capital and surplus.
Added
Additionally, because we often must obtain regulatory approval prior to changing rates, delays in the filing, review or implementation of rate changes can adversely affect our ability to attain rate adequacy. Our ability to afford reinsurance required to reduce our catastrophe risk may be dependent upon the ability to adjust rates for our cost.
Added
We could also be subject to attacks that include denial of service attacks, or the deployment of malware intended to compromise the functionality of our information systems. Our third-party providers of products, services and support are subject to similar cybersecurity risks.
Added
Any of these breaches could impact our policyholders and our business, resulting in a loss of customers, suppliers, or revenue, including interruptions to our operations or damage to our reputation, regulatory enforcement actions, substantial fines and penalties, litigation or other liability or actions which could have a material adverse effect on our business, cash flows, financial condition and results of operations.
Added
In addition, changes in technology typically outpace corresponding regulations, which may lead to periods of uncertainty in the permissible uses of certain technology and to differences or even inconsistencies in the regulatory approaches across jurisdictions. The absence of regulations or conflicts in regulations may further limit our ability to implement new technology in an effective and timely manner.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changePr operties The following is a summary of our offices and locations: Location Business Use Square Footage Lease Expiration Dates Tampa, Florida Corporate Headquarters 89,000 Leased Honolulu, Hawaii Insurance Company HI, Operations 4,405 Leased Clearwater, Florida Property occupied by unaffiliated tenant 75,736 Company owned Johnston, Rhode Island Insurance Company NE, Operations 28,098 Leased Approximately 96% of the building in Clearwater is leased to unaffiliated tenants.
Biggest changePr operties The following is a summary of our offices and locations: Location Business Use Square Footage Lease Expiration Dates Tampa, Florida Corporate Headquarters 89,000 Leased Honolulu, Hawaii Insurance Company HI, Operations 4,405 Leased Clearwater, Florida Property occupied by unaffiliated tenants 75,736 Company owned Sunrise, Florida Regional Office 28,000 Leased Johnston, Rhode Island Insurance Company NE, Operations 28,098 Leased Approximately 90% of the building in Clearwater is leased to unaffiliated tenants.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings We are subject to routine legal proceedings in the ordinary course of business. We believe that the ultimate resolution of these matters will not have a material adverse effect on our business, financial condition or results of operations. Item 4. Mine Saf ety Disclosures Not applicable 25 PART II
Biggest changeItem 3. Legal Proceedings We are subject to routine legal proceedings in the ordinary course of business. We believe that the ultimate resolution of these matters will not have a material adverse effect on our business, financial condition or results of operations. Item 4. Mine Saf ety Disclosures Not applicable 28 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe new share repurchase program, which commenced upon the expiration of the prior repurchase share plan, allows the Company to repurchase up to an aggregate of $10.0 million of Common Stock, through open market repurchases in compliance with Rule 10b-18 under the Exchange Act, and/or in privately negotiated transactions at management’s discretion based on market and business conditions, applicable legal requirements, and other factors, in such manner as will comply with the terms of applicable federal and state securities laws and regulations, at any time or from time to time on or prior to December 31, 2023. 26 Stock Performance Graph The following five year graph and table compare the cumulative total stockholder return of our common stock over the period from December 31, 2016 through 2022, assuming an initial investment of $100 and reinvestment of dividends with the performance among Heritage, NASDAQ Insurance Index and Russell 2000 Index.
Biggest changeStock Performance Graph The following five year graph and table compare the cumulative total stockholder return of our common stock over the period from December 31, 2018 through 2023, assuming an initial investment of $100 and reinvestment of dividends with the performance among Heritage, NASDAQ Insurance Index and Russell 2000 Index.
Holders of Record As of March 3, 2023, there were 48 holders of record of our common stock. Dividends While we have historically declared quarterly dividends, our board of directors did not declare a dividend for the second, third or fourth quarters of 2022.
Holders of Record As of March 4, 2024, there were 58 holders of record of our common stock. Dividends While we have historically declared quarterly dividends, our board of directors did not declare a dividend during 2023 or for the second, third, and fourth quarters of 2022.
Item 5. Market For Registrant’s Common Equity, Related Stoc kholder Matters and Issuer Purchases of Equity Securities Common Stock Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “HRTG”. As of March 3, 2023, we had 25,558,751 shares of common stock outstanding, including 622,011 shares of restricted stock for which restrictions have not lapsed.
Item 5. Market For Registrant’s Common Equity, Related Stoc kholder Matters and Issuer Purchases of Equity Securities Common Stock Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “HRTG”. As of March 4, 2024, we had 30,218,938 shares of common stock outstanding, including 1,579,369 shares of restricted stock for which restrictions have not lapsed.
Dec-16 Dec-17 Dec-18 Dec-19 Dec-21 Dec-22 Heritage Insurance Holdings, Inc $ 100 $ 115 $ 94 $ 85 $ 65 $ 38 NASDAQ Insurance Index $ 100 $ 103 $ 94 $ 120 $ 121 $ 137 Russell 2000 Index $ 100 $ 113 $ 99 $ 123 $ 146 $ 165 Item 6. [Reserved] 27
Dec-18 Dec-19 Dec-20 Dec-21 Dec-22 Dec-23 Heritage Insurance Holdings Inc. 100 89 57 69 42 43 NASDAQ Insurance Index 100 120 112 121 137 144 Russell 2000 Index 100 123 119 146 165 115 29 Item 6. [Reserved] 30
Refer to Note 22 “ Equity” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K. Stock Repurchase Program During the three months ended December 31, 2022, we purchased 341,075 shares of common stock for an aggregate of $625,000 under our stock repurchase program.
Refer to Note 22 “ Equity” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K.
Removed
In addition, we acquired 18,422 shares of common stock for a total cost of $35,739 during the quarter ended December 31, 2022 that were not part of the publicly announced stock repurchase program authorization. These shares were delivered to the Company by employees to satisfy tax withholding obligations with the vesting of restricted stock awards.
Removed
A summary of our common stock repurchases during the quarter ended December 31, 2022, is set forth in the table below (in thousands, except shares and price per share): Period Total Number of Shares Purchased Average Price Paid Per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (2) October 1 - October 31, 2022 47,540 $ 2.40 47,540 $ 18,127 November 1 - November 30, 2022 — — — $ 18,127 December 1 - December 31, 2022 311,957 $ 1.70 293,535 $ 10,000 Total 359,497 341,075 (1) Represents the balance before commission and fees at the end of each period.
Removed
(2) The reported repurchases were made under the prior $25.0 million repurchase plan, which expired on December 31, 2022. Effective December 31, 2022, the Board of Directors established a new share repurchase program.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeFor markets outside of Florida, the premiums-in-force increased while the policy count decreased due to rate actions taken. 28 At December 31, Policies in force: 2022 2021 % Change Florida 182,673 215,074 (15.1 ) % Other States 347,234 356,242 (2.5 ) % Total 529,907 571,318 (7.2 ) % Premiums in force: Florida $ 599,596,526 $ 560,431,244 7.0 % Other States 684,469,189 611,972,698 11.8 % Total $ 1,284,065,715 $ 1,172,103,942 9.6 % Total Insured Value: Florida $ 103,752,777,168 $ 107,144,880,580 (3.2 ) % Other States 306,070,446,229 290,830,572,887 5.2 % Total $ 409,823,223,397 $ 397,975,453,467 3.0 % Strategic Profitability Initiatives The following provides an update to our strategic initiatives that we expect will enable us to achieve consistent long-term quarterly earnings and drive shareholder value. • Generate underwriting profit though rate adequacy and more selective underwriting. o Significant rating actions throughout the book of business resulting in an increase in average premium per policy of 18.1% over fourth quarter 2021 and 5.6% over third quarter 2022. o Premiums-in-force of $1.3 billion are up 9.6% from fourth quarter 2021 while policy count is down 7.2% through more selective underwriting. o Continued focus on timely rate actions, tightening underwriting criteria, and expanding restrictions on new business written in over-concentrated markets or products. • Optimize capital allocation toward products and geographies that maximize long-term returns. o Increased commercial residential premium by 41.1% year over year while TIV only increased 21.5% and policies in force increased by only 0.4%. o Reduced policy count for Florida personal lines business by 16.2% as compared fourth quarter 2021.
Biggest changeStrategic Profitability Initiatives The following provides an update to our strategic initiatives that we expect will enable us to achieve consistent long-term quarterly earnings and drive shareholder value. • Generate underwriting profit though rate adequacy and more selective underwriting. o Significant rating actions throughout the book of business continues to favorably impact the book of business resulting in an increase in average premium per policy of 24.2% over the prior year. o Gross premiums earned increased 9.5% from the prior year, driven by rate actions taken in 2022 and 2023 as well as growth in commercial residential business, which helps drive the higher average premium. o Premiums-in-force of $1.4 billion are up 5.6% from the prior year while policy count is down 15.0% due to continued underwriting efforts aimed at rate adequacy, managing the reinsurance cost and improving the quality of the book of business. o Continued focus on timely rate actions, tightening underwriting criteria, and expanding restrictions on new business written in over-concentrated markets or products. • Allocate capital to products and geographies that maximize long-term returns. o Selectively increased commercial residential policy count driving an increase in premiums-in-force by 63.9% year over year while TIV only increased 20.7% and policies in force increased by only 3.0%.
As a result of the analysis, management determined the entire amount of remaining goodwill was impaired, which reduced our carrying value of goodwill from $92.0 million to $0 based on the following factors: (i) disruptions in the equity markets, specifically for property and casualty insurance companies, largely due to recent weather-related catastrophe events; (ii) elevated loss ratios for property insurers in our markets; and (iii) trading of our stock below book value.
As a result of the analysis, management determined the entire amount of remaining goodwill was impaired, which reduced our carrying value of goodwill from $92.0 million to $0 based on the following factors: (i) disruptions in the equity markets, specifically for property and casualty insurance companies, largely due to weather-related catastrophe events; (ii) elevated loss ratios for property insurers in our markets; and (iii) trading of our stock below book value.
The Company is required to maintain, as of each fiscal quarter (1) a maximum consolidated leverage ratio of 2.50 to 1.00, stepping down to 2.25 to 1.00 as of the second quarter of 2024 and 2.00 to 1.00 as of the second quarter of 2025, (2) a minimum consolidated fixed charge coverage ratio of 1.20 to 1.00 and (3) a minimum consolidated net worth for the Company and its subsidiaries, which is required to be not less than $100 million plus 50% of positive quarterly net income (including its subsidiaries 37 and regulated subsidiaries) plus the net cash proceeds of any equity transactions.
The Company is required to maintain, as of each fiscal quarter (1) a maximum consolidated leverage ratio of 2.50 to 1.00, stepping down to 2.25 to 1.00 as of the second quarter of 2024 and 2.00 to 1.00 as of the second quarter of 2025, (2) a minimum consolidated fixed charge coverage ratio of 1.20 to 1.00 and (3) a minimum consolidated net worth for the Company and its subsidiaries, which is required to be not less than $100 million plus 50% of positive quarterly net income (including its subsidiaries and regulated subsidiaries) plus the net cash proceeds of any equity transactions.
Recent legislative changes have been made in Florida in each of the last three years, which we believe is making some progress toward reducing losses from abusive claim reporting practices. The special legislative session of December 2022 included a number of additional provisions aimed at driving down claims abuses and stabilizing the Florida property insurance market.
Recent legislative changes have been made in Florida in each of the last three years, which we believe is making some progress 33 toward reducing losses from abusive claim reporting practices. The special legislative session of December 2022 included a number of additional provisions aimed at driving down claims abuses and stabilizing the Florida property insurance market.
Pursuant to the Security Agreement, amounts borrowed under the Credit Facilities are secured on a first priority basis by a perfected security interest in substantially all of the present and future assets of the Company and each Guarantor (subject to certain exceptions), including all of the capital stock of the Company’s domestic subsidiaries, other than its regulated insurance subsidiaries.
Pursuant to the Security Agreement, amounts borrowed under the Credit Facilities are secured on a first priority basis by a perfected security interest in substantially all of the present and future assets of the 42 Company and each Guarantor (subject to certain exceptions), including all of the capital stock of the Company’s domestic subsidiaries, other than its regulated insurance subsidiaries.
In order to avoid a covenant violation, on November 7, 2022, the Company and its subsidiary guarantors entered into an amendment to the Credit Agreement to, among other things, (i) decrease the Revolving Credit Facility commitments from $75 million to $50 million, (ii) establish a new $25 million Term Loan Facility (defined below) to refinance loans outstanding under the existing Revolving Credit Facility and to pay fees, costs and expenses related thereto, (iii) reduce, from $50 million to $25 million, the aggregate amount of potential future increases to the Revolving Credit Facility commitments and/or Term Loan Facility commitments, (iii) modify the amortization of the existing term loan facility and new term loan facility to 10% per annum, paid quarterly, and (iv) increase the applicable margin for loans under the 36 Credit Agreement to a range from 2.75% to 3.25% per annum for SOFR loans (plus a 0.10% credit adjustment spread) and based on a leverage ratio (an increase from the prior range of 2.50% to 3.00%).
In order to avoid a covenant violation, on November 7, 2022, the Company and its subsidiary guarantors entered into an amendment to the Credit Agreement to, among other things, (i) decrease the Revolving Credit Facility commitments from $75 million to $50 million, (ii) establish a new $25 million Term Loan Facility (defined below) to refinance loans outstanding under the existing Revolving Credit Facility and to pay fees, costs and 41 expenses related thereto, (iii) reduce, from $50 million to $25 million, the aggregate amount of potential future increases to the Revolving Credit Facility commitments and/or Term Loan Facility commitments, (iii) modify the amortization of the existing term loan facility and new term loan facility to 10% per annum, paid quarterly, and (iv) increase the applicable margin for loans under the Credit Agreement to a range from 2.75% to 3.25% per annum for SOFR loans (plus a 0.10% credit adjustment spread) and based on a leverage ratio (an increase from the prior range of 2.50% to 3.00%).
The conversion rate is subject to adjustment in certain circumstances and is subject to increase for holders that elect to convert their Convertible Notes in connection with certain corporate transactions (but not, at the Company’s election, a public acquirer change of control (as defined in the Convertible Note Indenture)) that occur prior to August 5, 2022.
The conversion rate is subject to adjustment in certain circumstances and is subject to increase for holders that elect to convert their Convertible Notes in 43 connection with certain corporate transactions (but not, at the Company’s election, a public acquirer change of control (as defined in the Convertible Note Indenture)) that occur prior to August 5, 2022.
Goodwill impairment We evaluate goodwill and other intangible assets for impairment at least on an annual basis or whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount of goodwill and other intangible assets may exceed their implied fair value.
Goodwill or intangible asset impairment We evaluate goodwill and other intangible assets for impairment at least on an annual basis or whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount of goodwill and other intangible assets may exceed their implied fair value.
Goodwill impairment Charge We evaluate goodwill and other intangible assets for impairment annually, or whenever events or changes in circumstances indicate that it is likely that the carrying amount of goodwill and other intangible assets may exceed the implied fair value. Any impairment is charged to operations in the period that the impairment is identified.
Goodwill impairment Charge (2022) We evaluate goodwill and other intangible assets for impairment annually, or whenever events or changes in circumstances indicate that it is likely that the carrying amount of goodwill and other intangible assets may exceed the implied fair value. Any impairment is charged to operations in the period that the impairment is identified.
The outstanding balance as of December 31, 2022 of non-affiliated Notes was $885,000. On August 1, 2022, the Company made payments for the principal amount of the Convertible Notes tendered and unpaid interest in the aggregate amounts of $10.9 million and $320,041, respectively.
The outstanding balance as of December 31, 2023 of non-affiliated Notes was $885,000. On August 1, 2022, the Company made payments for the principal amount of the Convertible Notes tendered and unpaid interest in the aggregate amounts of $10.9 million and $320,041, respectively.
Goodwill is evaluated at the reporting unit level, for which we have one reporting unit level. Any impairment is charged to operations in the period that the impairment is identified. The Goodwill impairment evaluation includes a review of a variety of factors as described below, which require considerable management judgment.
Goodwill was evaluated at the reporting unit level, for which we have one reporting unit level. Any impairment is charged to operations in the period that the impairment is identified. The Goodwill impairment evaluation includes a review of a variety of factors as described below, which require considerable management judgment.
Refer to Note 11 “ Deferred Policy Acquisition Costs” to our consolidated financial statements under Item 8 of this Annual Report on Form 10K. Ceding commission income is deferred and earned over the contract period.
Refer to Note 11 “ Deferred Policy Acquisition Costs” to our consolidated financial statements under Item 8 of this Annual Report on Form 10K. Ceding 34 commission income is deferred and earned over the contract period.
The evaluation of goodwill impairment requires considerable management judgment and includes a review of a variety of factors as described in Note 3, Goodwill and Other Intangible assets to our consolidated financial statements. Any adverse change in those factors could have a significant impact on the recoverability of goodwill and a material impact on our financial results.
The evaluation of goodwill impairment requires considerable management judgment and includes a review of a variety of factors as described in Note 3, Intangible Assets, net to our consolidated financial statements. Any adverse change in those factors could have a significant impact on the recoverability of goodwill and a material impact on our financial results.
Should we determine that a premium deficiency exists, we would write off the unrecoverable portion of deferred policy acquisition costs. No accruals for premium deficiency were considered necessary as of December 31, 2022 and 2021. Reinsurance. We follow industry practice of reinsuring a portion of our risks.
Should we determine that a premium deficiency exists, we would write off the unrecoverable portion of deferred policy acquisition costs. No accruals for premium deficiency were considered necessary as of December 31, 2023 and 2022. Reinsurance. We follow industry practice of reinsuring a portion of our risks.
As of December 31, 2022, there was $885,000 principal amount of outstanding Convertible Notes, net of $21.1 million of Convertible Notes held by an insurance company subsidiary.
As of December 31, 2023, there was $885,000 principal amount of outstanding Convertible Notes, net of $21.1 million of Convertible Notes held by an insurance company subsidiary.
Overview of 2022 Financial Results In the following section, we discuss our financial condition and results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Overview of 2023 Financial Results In the following section, we discuss our financial condition and results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022.
For a discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020, please Refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 14, 2022.
For a discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021, please Refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 13, 2023.
Convertible Notes On August 10, 2017, the Company and Heritage MGA, LLC (the “Notes Guarantor”) entered into a purchase agreement (the “Purchase Agreement”) with Citigroup Global Markets Inc., as the initial purchaser (the “Initial Purchaser”), pursuant to which the Company agreed to issue and sell, and the Initial Purchaser agreed to purchase, $125.0 million aggregate principal amount of the Company’s 5.875% Convertible Senior Notes due 2037 (the “Convertible Notes”) in a private placement transaction pursuant to Rule 144A under the Securities Act, as amended (the “Securities Act”).
Convertible Note On August 10, 2017 and September 6, 2017, the Company and Heritage MGA, LLC (the “Notes Guarantor”) entered into a purchase agreement (the “Purchase Agreement”) with Citigroup Global Markets Inc., as the initial purchaser (the “Initial Purchaser”), pursuant to which the Company agreed to issue and sell, and the Initial Purchaser agreed to purchase, $136.8 million aggregate principal amount of the Company’s 5.875% Convertible Senior Notes due 2037 (the “Convertible Notes”) in a private placement transaction pursuant to Rule 144A under the Securities Act, as amended (the “Securities Act”).
Net combined ratio represents the sum of the net loss and expense ratio. The net combined ratio is a key measure of underwriting performance traditionally used in the property and casualty insurance industry. A net combined ratio under 100% generally reflects profitable underwriting results.
The net combined ratio is a key measure of underwriting performance traditionally used in the property and casualty insurance industry. A net combined ratio under 100% generally reflects profitable underwriting results.
Membership in the FHLB required an investment in FHLB’s common stock which was purchased on December 31, 2018 and valued at $1.4 million. As of December 31, 2022, the common stock was valued at $1.5 million.
Membership in the FHLB required an investment in FHLB’s common stock which was purchased in December 2018 and valued at $1.4 million. As of December 31, 2023, the common stock was valued at $1.4 million.
Trends Inflation, Underwriting and Pricing We continue to address rising reinsurance and loss costs in the property insurance sector through continued implementation of increased rates and inflation guard factors resulting in an increase in the average premium per policy of 18.1% for the year ended December 31, 2022 as compared to the prior year 2021.
Trends Inflation, Underwriting and Pricing We continue to address rising reinsurance and loss costs in the property insurance sector through continued implementation of increased rates and inflation guard factors resulting in an increase in the average premium per policy of 24.2% for the year ended December 31, 2023 as compared to the prior year.
For the years ended December 31, 2022, 2021 and 2020, we earned ceding commission income of $61.8 million, $62.7 million and $57.1 million of which $46.5 million, $47.1 million and $43.0 million was allocable to policy acquisition costs. Deferred taxes .
For the years ended December 31, 2023, 2022 and 2021, we earned ceding commission income of $64.8 million, $62.7 million and $57.1 million of which $48.7 million, $47.1 million and $43.0 million was allocable to policy acquisition costs. Deferred taxes .
Upon the occurrence of a fundamental change (as defined in the Convertible Note Indenture) (but not, at the Company’s election, a public acquirer change of control (as defined in the Convertible Note Indenture), holders of the Convertible Notes may require the Company to repurchase for cash all or a portion of their Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. 38 At any time prior to February 1, 2037, the Company may redeem for cash all or any portion of the Convertible Notes, at the Company’s option, at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
Upon the occurrence of a fundamental change (as defined in the Convertible Note Indenture) (but not, at the Company’s election, a public acquirer change of control (as defined in the Convertible Note Indenture), holders of the Convertible Notes may require the Company to repurchase for cash all or a portion of their Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
At each reporting date, we determine whether we have a premium deficiency. A premium deficiency would result if the sum of our expected losses, deferred policy acquisition costs and policy maintenance costs (such as costs to store records and costs incurred to collect premiums and pay commissions) exceeded our related unearned premiums plus investment income.
A premium deficiency would result if the sum of our expected losses, deferred policy acquisition costs and policy maintenance costs (such as costs to store records and costs incurred to collect premiums and pay commissions) exceeded our related unearned premiums plus investment income.
We provide personal residential insurance in Alabama, California, Connecticut, Delaware, Florida, Georgia, Hawaii, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Rhode Island, South Carolina, and Virginia and commercial residential insurance in Florida, New Jersey, and New York. We provide personal residential insurance in Florida on both an admitted and non-admitted basis and in California on a non-admitted basis.
We provide personal residential insurance in Alabama, California, Connecticut, Delaware, Florida, Georgia, Hawaii, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Rhode Island, South Carolina, and Virginia and commercial residential insurance in Florida, New Jersey, and New York.
Ratios Ceded premium ratio represents ceded premiums earned as a percentage of gross premiums earned. Net loss ratio represents net losses and LAE as a percentage of net premiums earned. Net expense ratio represents PAC and G&A expenses as a percentage of net premiums earned. Ceding commission income is reported as a reduction of policy acquisition costs and G&A expenses.
Net loss ratio represents net losses and LAE as a percentage of net premiums earned. Net expense ratio represents PAC and G&A expenses as a percentage of net premiums earned. Ceding commission income is reported as a reduction of policy acquisition costs and G&A expenses. Net combined ratio represents the sum of the net loss and expense ratio.
The Company has drawn $10.0 million from the Revolving Credit Facility to replenish the cash used to pay the $10.9 million for the purchase of the tendered Convertible Notes.
In November 2022, the Company drew $10.0 million from the Revolving Credit Facility to replenish the cash used to pay the $10.9 million for the purchase of the tendered Convertible Notes.
Our external reserving actuaries evaluated the adequacy of our reserves as of December 31, 2022 and concluded that our reported loss reserves would meet the requirements of the insurance laws of the states in which our insurance subsidiaries are domiciled, be consistent with reserves computed in accordance with accepted loss reserving standards and principles, and make a reasonable provision for all unpaid loss and loss adjustment expense obligations under the terms of our contracts and agreements.
Our selection of the point estimate is influenced by the analysis of our paid losses and incurred losses since inception. 46 Our external reserving actuaries evaluated the adequacy of our reserves as of December 31, 2023 and concluded that our reported loss reserves would meet the requirements of the insurance laws of the states in which our insurance subsidiaries are domiciled, be consistent with reserves computed in accordance with accepted loss reserving standards and principles, and make a reasonable provision for all unpaid loss and loss adjustment expense obligations under the terms of our contracts and agreements.
As of December 31, 2022, there was $89.1 million in aggregate principal outstanding under the Term Loan Facility. Revolving Credit Facility.
As of December 31, 2023, there was $79.6 million in aggregate principal outstanding under the Term Loan Facility. Revolving Credit Facility.
Recent Accounting Pronouncements Not Yet Effective The Company describes the recent pronouncements that have had or may have a significant effect on its financial statements or on its disclosures. The Company does not discuss recent pronouncements that a) are not anticipated to have an impact on, or b) are unrelated to its financial condition, results of operations, or related disclosures.
The Company does not discuss recent pronouncements that a) are not anticipated to have an impact on, or b) are unrelated to its financial condition, results of operations, or related disclosures.
Rate increases continued to meaningfully benefit written premiums throughout the book of business. • Gross premiums earned of $1.2 billion, up 5.7% from $1.1 billion in the prior year, reflecting higher gross premiums written over the last twelve months driven by a higher average premium per policy. • Net premiums earned of $637.1 million, up 4.3% from $611.1 million in the prior year, reflecting the higher gross earned premium outpacing the increase in ceded premiums for the year. • Losses and loss adjustment expenses incurred of $501.2 million, up 17.3% from $427.4 million in the prior year.
Additionally, rate increases continued to meaningfully benefit written premiums throughout the book of business and use of inflation guard results in higher premium. 35 • Gross premiums earned of $1.32 billion, up 9.5% from $1.28 billion in the prior year, reflecting higher gross premiums written over the last twelve months driven by a higher average premium per policy. • Net premiums earned of $697.2 million, up 9.4% from $637.1 million in the prior year, reflecting the higher gross earned premium outpacing the increase in ceded premiums for the year. • Losses and loss adjustment expenses incurred of $426.1 million, down 15.0% from $501.2 million in the prior year.
As of December 31, 2022, the borrowings under the Term Loan Facility and Revolving Credit Facility accruing interest at a rate of 7.32% and 7.42% per annum, respectively.
As of December 31, 2023, the borrowings under the Term Loan Facility and Revolving Credit Facility accruing interest at a rate of 8.179% and 8.198% per annum, respectively.
We review and adjust our IBNR reserves on a quarterly basis based on information available to us at the balance sheet date. 40 When we establish our reserves, we analyze various factors such as the evolving historical loss experience of the insurance industry as well as our experience, claims frequency and severity, our business mix, our claims processing procedures, legislative enactments, judicial decisions and legal developments in imposition of damages, and general economic conditions, including inflation.
When we establish our reserves, we analyze various factors such as the evolving historical loss experience of the insurance industry as well as our experience, claims frequency and severity, our business mix, our claims processing procedures, legislative enactments, judicial decisions and legal developments in imposition of damages, and general economic conditions, including inflation.
Benefit for income taxes The benefit for income taxes was $11.8 million for the year ended December 31, 2022 compared to a benefit for income taxes of $1.3 million for the year ended December 31, 2021. The effective tax rate for the current year is 7.1% compared to 1.7% for the prior year.
Provision (benefit) for income taxes The provision for income taxes was $6.7 million for the year ended December 31, 2023 compared to a benefit for income taxes of $11.8 million for the year ended December 31, 2022. The effective tax rate for the year ended December 31, 2023 was 12.9% compared to 7.1% in the prior year.
In addition to $300.6 million of recorded case reserves, we recorded $831.2 million of IBNR reserves as of December 31, 2022 to achieve overall gross reserves of $1.1 billion. At December 31, 2022, ceded IBNR and net IBNR were $546.0 million and $285.2 million, respectively.
In addition to $292.1 million of recorded case reserves, we recorded $553.4 million of IBNR reserves as of December 31, 2023 to achieve overall gross reserves of $846.0 billion. At December 31, 2023, ceded IBNR and net IBNR were $277.2 million and $276.6 million, respectively.
For further information on long-term debt, Refer to Note 14 “ Long Term Debt ” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. 39 The expected timing of payments of the obligations in the preceding table is estimated based on current information.
Debt obligations are classified based on their stated maturity date. For further information on long-term debt, Refer to Note 14 “ Long Term Debt ” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
In the event that we incur losses recoverable under the reinsurance program, the estimate of amounts recoverable from reinsurers on unpaid losses may change at any point in the future because of its relation to our reserves for unpaid losses.
In the event that we incur losses recoverable under the reinsurance program, the estimate of amounts recoverable from reinsurers on unpaid losses may change at any point in the future because of its relation to our reserves for unpaid losses. 47 We estimate uncollectible amounts receivable from reinsurers based on an assessment of factors including the creditworthiness of the reinsurers and the adequacy of collateral obtained, where applicable.
On the policy effective date, we reduce the advance premium liability and record the premiums as described above. Reserves for Unpaid Losses and Loss Adjustment Expenses . Reserves for unpaid losses and loss adjustment expenses, also referred to as loss reserves, represent the most significant accounting estimate inherent in the preparation of our financial statements.
Reserves for unpaid losses and loss adjustment expenses, also referred to as loss reserves, represent the most significant accounting estimate inherent in the preparation of our financial statements.
We determine our ultimate loss reserves by selecting an estimate within a relevant range of indications that we calculate using generally accepted actuarial techniques. Our selection of the point estimate is influenced by the analysis of our paid losses and incurred losses since inception.
We determine our ultimate loss reserves by selecting an estimate within a relevant range of indications that we calculate using generally accepted actuarial techniques.
Statement of Cash Flows The net increases (decreases) in cash and cash equivalents are summarized in the following table: For the Year Ended December 31, 2022 2021 2020 2022 vs 2021 Change 2021 vs 2020 Change Net cash provided by (used in): (in thousands) Operating activities $ (34,260 ) $ 60,130 $ 170,211 $ (94,390 ) $ (110,081 ) Investing activities (37,862 ) (124,480 ) 22,062 86,618 (146,542 ) Financing activities (5,058 ) (17,281 ) (28,898 ) 12,223 11,617 Net change in cash, cash equivalents, and restricted cash $ (77,180 ) $ (81,631 ) $ 163,376 $ 4,451 $ (245,006 ) Operating Activities Net cash used in operating activities for the year ended December 31, 2022 was $34.3 million compared to net cash provided by of $60.1 million during the prior year.
Statement of Cash Flows The net increases (decreases) in cash and cash equivalents are summarized in the following table: For the Year Ended December 31, 2023 2022 2021 2023 vs 2022 Change 2022 vs 2021 Change Net cash provided by (used in): (in thousands) Operating activities $ 70,415 $ (34,260 ) $ 60,130 $ 104,675 $ (94,390 ) Investing activities 100,806 (37,862 ) (124,480 ) 138,668 86,618 Financing activities 14,546 (5,058 ) (17,281 ) 19,604 12,223 Net change in cash, cash equivalents, and restricted cash $ 185,767 $ (77,180 ) $ (81,631 ) $ 262,947 $ 4,451 Operating Activities Net cash provided by operating activities for the year ended December 31, 2023 was $70.4 million compared to net cash used in operating activities of $34.3 million during the prior year.
We estimate our IBNR reserves by projecting our ultimate losses using industry accepted actuarial methods and then deducting actual loss payments and case reserves from the projected ultimate losses.
We estimate our IBNR reserves by projecting our ultimate losses using industry accepted actuarial methods and then deducting actual loss payments and case reserves from the projected ultimate losses. We review and adjust our IBNR reserves on a quarterly basis based on information available to us at the balance sheet date.
The effective tax rate for the year ended December 31, 2022 was also impacted by a $6.4 million valuation allowance against our net deferred tax asset related to certain tax elections made by Osprey Re, our captive reinsurer domiciled in Bermuda, whose utilization may be limited under the Internal Revenue Code.
In contrast, for the year ended December 31, 2022 a $6.4 million valuation allowance was established against our Osprey net deferred tax assets whose utilization may be limited under the Internal Revenue Code.
The effective tax rate for 2021 was lower than the statutory rate primarily due to a mostly non-deductible non-cash goodwill impairment of $60.5 million.
The effective tax rate for 2022 was also significantly lower than the statutory rate due to a non-cash, mostly tax non-deductible goodwill impairment of $92.0 million recorded in the second quarter.
As noted above, a certain portion of our ceding commissions are allocated to general and administrative expenses. 30 Provision for income taxes consists of federal and state corporate level income taxes. The effective tax rate can fluctuate throughout the year as estimates used in the quarterly tax provision are updated with additional information throughout the year.
As noted above, a certain portion of our ceding commissions are allocated to general and administrative expenses. Provision for income taxes consists of federal and state corporate level income taxes.
Ratios Year Ended December 31, 2022 2021 Ceded premium ratio 47.3 % 46.6 % Net loss and LAE ratio 78.7 % 69.9 % Net expense ratio 35.6 % 34.7 % Net combined ratio 114.3 % 104.6 % Net combined ratio The net combined ratio was 114.3% for the year ended December 31, 2022, up 9.7 points from 104.6% in the prior year.
Year Ended December 31, 2023 2022 Ceded premium ratio 47.3 % 47.3 % Net loss and LAE ratio 61.1 % 78.7 % Net expense ratio 35.2 % 35.6 % Net combined ratio 96.3 % 114.3 % Net combined ratio The net combined ratio was 96.3% for the year ended December 31, 2023, an 18.7 point improvement from 114.3% in the prior year.
In addition, the Company recorded a $6.4 million valuation allowance against our net deferred tax asset related to certain tax elections made by Osprey Re, our captive reinsurer domiciled in Bermuda.
In addition, during 2022 we recorded a $6.4 million valuation allowance against our net deferred tax asset resulting from the operation of certain tax elections made by Osprey, our captive reinsurer domiciled in Bermuda which reduced the income tax benefit for the year.
On December 23, 2022, the Company borrowed $10.0 million under the Revolving Credit facility. At December 31, 2022, the Company had unused letters of credit totaling $32.6 million.
On December 23, 2022, the Company borrowed $10.0 million under the Revolving Credit facility. At December 31, 2023, the outstanding balance under the Revolving Credit facility was $10.0 million.
This discussion should be read in conjunction with our consolidated financial statements and the related notes included under Part II, Item 8 of this Annual Report on Form 10-K. • Net loss for the year ended December 31, 2022 was $154.4 million or $5.86 per diluted share, compared to a net loss of $74.7 million or $2.69 per diluted share in the prior year, with the increase stemming from a $90.8 million, net of income tax, non-cash goodwill impairment charge in the second quarter contributing a $3.45 loss per share, compared to a $60.5 31 million, non-cash goodwill impairment charged reported in the fourth quarter of 2021 contributing a $2.18 loss per share; combined with higher losses and loss adjustments expenses incurred for the year ended December 31, 2022, which included net losses associated with Hurricanes Ian and Nicole.
This discussion should be read in conjunction with our consolidated financial statements and the related notes included under Part II, Item 8 of this Annual Report on Form 10-K. • Net income for the year ended December 31, 2023 was $45.3 million or $1.73 per diluted share, compared to a net loss of $154.4 million or $5.86 diluted loss per share in the prior year.
Liquidity and Capital Resources Our principal sources of liquidity include cash flows generated from operations, our cash, cash equivalents, our marketable securities balances and borrowings available under our credit facilities.
As interest rates tempered during 2023 and certain investments matured at face value, unrealized losses declined from the prior year. Liquidity and Capital Resources Our principal sources of liquidity include cash flows generated from operations, our cash, cash equivalents, our marketable securities balances and borrowings available under our credit facilities.
Balances in premiums receivable and the associated allowance account are removed upon cancellation of the policy due to non-payment. We recorded bad debt expense of approximately $0, $0 and $161,300 in 2022, 2021, 2020, respectively. When we receive premium payments from policyholders prior to the effective date of the related policy, we record an advance premium liability.
Balances in premiums receivable and the associated allowance account are removed upon cancellation of the policy due to non-payment and returned agent commission. We recorded bad debt expense of approximately $855,750, $0 and $0 in 2023, 2022, and 2021, respectively.
Investing Activities Net cash used in investing activities for the year ended December 31, 2022 was $37.9 million compared to net cash used of $124.5 million in the prior year. The change in cash used in investing activities relates primarily to allocations of funds for investment in each period.
Investing Activities Net cash provided by investing activities for the year ended December 31, 2023 was $100.8 million compared to net cash used of $37.9 million in the prior year.
As described herein, we are carefully managing exposure by reducing new business written in certain geographies, non-renewing unprofitable business in compliance with regulatory requirements, increasing rates, where permitted by regulators, and narrowing our underwriting requirements.
As described herein, we are carefully managing exposure by reducing new personal lines business written in many geographies, non-renewing unprofitable business in compliance with regulatory requirements, and narrowing our underwriting requirements. We have improved the geographic distribution of our business, which is becoming more rate adequate.
The increase primarily stems from higher gross premiums earned, partly offset by higher ceded premiums as described above. 33 Net investment income Net investment income, inclusive of realized investment gains (losses) and unrealized gains (losses) on equity securities, was $11.7 million for the year ended December 31, 2022, up 109.0% compared to $5.6 million in the prior year.
Net investment income Net investment income, inclusive of realized investment gains (losses) and unrealized gains (losses) on equity securities, was $24.8 million for the year ended December 31, 2023, up 112.0% compared to $11.7 million in the prior year.
Interest expense, net Interest expense was $8.8 million for the year ended December 31, 2022, above the prior year by 10.5% as a result of rising interest rates.
Interest expense, net Interest expense was $11.2 million for the year ended December 31, 2023, above the prior year by 27.3% as a result of higher interest rates on our variable rate debt.
Growth throughout our book of business was largely driven by rate increases resulting in a higher average premium per policy. Premiums-in-force were $1.3 billion as of December 31, 2022, representing a 9.6% increase from the prior year due to continued proactive underwriting and rate actions despite a reduction in policy count reduction of approximately 40,000.
Premiums-in-force were $1.4 billion as of December 31, 2023, representing a 5.6% increase from the prior year due to continued proactive underwriting action and rate increases across the entire portfolio and strategic growth in our commercial residential product, despite a policy count reduction of approximately 79,000, driven by an intentional reduction in our personal lines policy count.
Finally, the effective tax rate can fluctuate throughout the year as estimates used in the quarterly tax provision are updated with additional information throughout the year, including changes to pre-tax income and from the impact of permanent differences on pre-tax income or loss.
The effective tax rate can fluctuate throughout the year as estimates used in the quarterly tax provision are updated with additional information throughout the year and updated with actual amounts in the fourth quarter.
As a result of our analysis for goodwill impairment, we impaired $60.5 million of goodwill in the fourth quarter of 2021 and impaired the entire amount of remaining goodwill in the second quarter of 2022, reducing our carrying value of goodwill from $92.0 million at December 31, 2021 to $0 at December 31, 2022.
Any adverse change in these factors could have a significant impact on the recoverability of goodwill and could have a material impact on our consolidated financial statements. 38 As a result of our analysis for goodwill impairment, we impaired $92.0 million of goodwill during the second quarter of 2022, reducing our carrying value of goodwill to $0 at December 31, 2022.
The decrease in investments was driven by higher unrealized losses on our fixed income securities caused by rising interest rates.
The decrease in investments was driven by maturities which were not reinvested as described above which was partly offset by lower unrealized losses on our fixed income securities as interest rates stabilized.
Policy acquisition costs Policy acquisition costs were $156.3 million for the year ended December 31, 2022, up 7.1% compared to $146.0 million in the prior year. Higher acquisition costs were driven by the increase in gross premiums written.
Additionally, we experienced $1.6 million of favorable prior year development compared to $3.7 million of adverse prior year development in 2022. Policy acquisition costs Policy acquisition costs were $167.6 million for the year ended December 31, 2023, up 7.2% compared to $156.3 million in the prior year.
Net expense ratio The net expense ratio was 35.6% for the year ended December 31, 2022, up 0.9 points from 34.7% in the prior year. The increase primarily stems from the impact of a higher ceded premium ratio as well as higher policy acquisition associated with the increase in gross premiums written.
Net expense ratio The net expense ratio was 35.2% for the year ended December 31, 2023, down 0.4 points from 35.6% in the prior year. The decrease primarily stems from the impact of higher net premiums earned which offset higher policy acquisition costs and G&A costs as described above.
At December 31, 2022, we assessed our deferred tax position and hold a $6.4 million valuation against our net deferred tax assets. We intend to continue maintaining the valuation allowance on our net deferred tax asset until there is sufficient evidence to support the reversal of all or some portion of the allowance. 41 Provision for Premium Deficiency .
At December 31, 2023, we assessed our deferred tax position and hold no valuation against our net deferred tax assets as there is sufficient evidence to support the recorded net deferred tax asset. Provision for Premium Deficiency . At each reporting date, we determine whether we have a premium deficiency.
The effective tax rate can vary from the 26.5% statutory federal and state blended rate depending on the amount of pretax income in proportion to permanent tax differences as well as state tax apportionment. The 2022 and 2021 effective tax rates were adversely impacted by the mostly non-deductible goodwill impairment reported of $92.0 million and $60.5 million, respectively.
The effective tax rate can vary from the 26.5% statutory federal and state blended rate depending on the amount of pretax income in proportion to permanent tax differences as well as state tax apportionment. The 2023 effective tax rate was favorably impacted by the release of valuation allowance associated with the operations of our captive reinsurer, Osprey.
The increase stems primarily from a higher net loss and net expense ratios, described below. Ceded premium ratio The ceded premium ratio was 47.3% for the year ended December 31, 2022, up 0.7 points from 46.6% in the prior year.
The improvement stems primarily from a significantly lower net loss and LAE ratio, described below. 39 Ceded premium ratio The ceded premium ratio was 47.3% for the year ended December 31, 2023, flat compared to the prior year. The increase in gross premiums earned year over year offset the increase in ceded premium.
The effective tax rate can also vary driven by the impact of permanent differences in relation to the pre-tax income or loss each year. 32 Consolidated Results of Operations The following table summarizes our results of operations for the years indicated: Year Ended December 31, 2022 2021 $ Change % Change (in thousands, expect per share amounts) REVENUE: Gross premiums written $ 1,275,031 $ 1,164,879 $ 110,152 9.5 % Change in gross unearned premiums (66,207 ) (20,717 ) (45,490 ) 219.6 % Gross premiums earned 1,208,824 1,144,162 64,662 5.7 % Ceded premiums (571,759 ) (533,091 ) (38,668 ) 7.3 % Net premiums earned 637,065 611,071 25,994 4.3 % Net investment income 11,977 5,652 6,325 111.9 % Net realized gains (258 ) (16 ) (242 ) NM Other revenue 13,676 14,854 (1,178 ) (7.9 %) Total revenue $ 662,460 $ 631,561 $ 30,899 4.9 % OPERATING EXPENSES: Losses and loss adjustment expenses $ 501,162 $ 427,370 $ 73,792 17.3 % Policy acquisition costs 156,304 145,968 10,335 7.1 % General and administrative expenses 70,396 65,787 4,610 7.0 % Goodwill impairment 91,959 60,500 31,459 52.0 % Total operating expenses 819,821 699,625 120,196 17.2 % Operating (loss) income (157,361 ) (68,064 ) (89,296 ) 131.2 % Interest expense, net 8,809 7,970 839 10.5 % Loss before income taxes (166,170 ) (76,035 ) (90,135 ) 118.5 % Benefit for income taxes (11,807 ) (1,307 ) (10,500 ) 803.4 % Net loss $ (154,362 ) $ (74,727 ) $ (79,635 ) 106.6 % Basic net loss per share $ (5.86 ) $ (2.69 ) $ (3.17 ) 118.0 % Diluted net loss per share $ (5.86 ) $ (2.69 ) $ (3.17 ) 118.0 % NM – not meaningful Total revenue Total revenue was $662.5 million for the year ended December 31, 2022, up 4.9% compared to $631.6 million in the prior year.
The effective tax rate can also vary driven by the impact of permanent differences in relation to the pre-tax income or loss each year. 36 Consolidated Results of Operations The following table summarizes our results of operations for the years indicated: Year Ended December 31, 2023 2022 $ Change % Change (in thousands, expect per share amounts) REVENUE: Gross premiums written $ 1,343,101 $ 1,275,031 $ 68,070 5.3 % Change in gross unearned premiums (19,458 ) (66,207 ) 46,749 (70.6 %) Gross premiums earned 1,323,643 1,208,824 114,819 9.5 % Ceded premiums (626,458 ) (571,759 ) (54,698 ) 9.6 % Net premiums earned 697,186 637,065 60,121 9.4 % Net investment income 25,756 11,977 13,778 115.0 % Net realized losses and impairment losses (972 ) (258 ) (713 ) 276.1 % Other revenue 13,529 13,676 (147 ) (1.1 %) Total revenue $ 735,499 $ 662,460 $ 73,039 11.0 % OPERATING EXPENSES: Losses and loss adjustment expenses $ 426,129 $ 501,162 $ (75,033 ) (15.0 %) Policy acquisition costs 167,610 156,304 11,306 7.2 % General and administrative expenses 77,777 70,396 7,381 10.5 % Goodwill or intangible asset impairment 767 91,959 (91,193 ) (99.2 %) Total expenses 672,283 819,821 (147,538 ) (180.0 %) Operating income (loss) 63,216 (157,361 ) 220,577 (140.2 %) Interest expense, net 11,210 8,809 2,402 27.3 % Income (loss) before taxes 52,006 (166,170 ) 218,175 (131.3 %) Provision (benefit) for income taxes 6,698 (11,807 ) 18,506 (156.7 %) Net income (loss) $ 45,308 $ (154,363 ) $ 199,670 (129.4 %) Basic net income (loss) per share $ 1.73 $ (5.86 ) $ 7.59 (129.5 %) Diluted net income (loss) per share $ 1.73 $ (5.86 ) $ 7.59 (129.5 %) Total revenue Total revenue was $735.5 million for the year ended December 31, 2023, up 11.0% compared to $662.5 million in the prior year.
Year Ended December 31, 2022 2021 $ Change % Change OPERATING EXPENSES: Losses and loss adjustment expenses $ 501,162 $ 427,370 $ 73,792 17.3 % Policy acquisition costs 156,304 145,968 10,335 7.1 % General and administrative expenses 70,396 65,787 4,610 7.0 % Goodwill impairment 91,959 60,500 31,459 52.0 % Total operating expenses $ 819,821 $ 699,625 $ 120,196 17.2 % Total operating expenses Total operating expenses were $819.8 million, or 17.2% from $699.6 million in the prior year.
Year Ended December 31, 2023 2022 $ Change % Change (in thousands) OPERATING EXPENSES: Losses and loss adjustment expenses $ 426,129 $ 501,162 $ (75,033 ) (15.0 %) Policy acquisition costs 167,610 156,304 11,306 7.2 % General and administrative expenses 77,777 70,396 7,381 10.5 % Goodwill or intangible asset impairment 767 91,959 (91,193 ) (99.2 %) Total operating expenses $ 672,283 $ 819,821 $ (147,538 ) (18.0 %) Total operating expenses Total operating expenses were $672.3 million, down 18.0% from $819.8 million in the prior year.
As a vertically integrated insurer, we control or manage substantially all aspects of risk management, underwriting, claims processing and adjusting, actuarial rate making and reserving, customer service, and distribution. Our financial strength ratings are important to us in establishing our competitive position and can impact our ability to write policies.
We provide personal residential insurance in Florida and South Carolina on both an admitted and non-admitted basis and in California on a non-admitted basis. As a vertically integrated insurer, we control or manage substantially all aspects of risk management, underwriting, claims processing and adjusting, actuarial rate making and reserving, customer service, and distribution.
The effective tax rate for 2022 was significantly lower than the statutory rate due to a non-cash, mostly tax non-deductible goodwill impairment of $92.0 million recorded in the second quarter as well as a $6.4 million valuation allowance against our Osprey Re net deferred tax assets whose utilization may be limited under the Internal Revenue Code.
The effective tax rate for pre-tax loss experienced for the year ended December 31, 2022 was also significantly lower than the statutory rate due to a non-cash, mostly tax non-deductible goodwill impairment of $92.0 million recorded in the second quarter.
Recent Developments Economic and Market Factors We continue to monitor the effects of general changes in economic and market conditions on our business. As a result of general supply chain disruptions and inflationary pressures, we have experienced, and may continue to experience, increased cost of materials and labor needed for repairs and to otherwise remediate claims.
As a result of general inflationary pressures, we have experienced, and may continue to experience, increased cost of materials and labor needed for repairs and to otherwise remediate claims throughout all states in which we conduct business. Additionally, we anticipate continued rising costs and constrained availability of catastrophe reinsurance.
The total amount of these expenses exceeded the increase in total revenue as described below. • Gross premiums written of $1.3 billion, up 9.5% from $1.2 billion in the prior year, driven primarily by rate actions taken in all states with a policy count reduction of 7.2% driven substantially by a reduction in the number of Florida personal lines policies.
In addition, during 2022 the Company recorded a $6.4 million valuation allowance against our net deferred tax asset related to certain tax elections made by Osprey, our captive reinsurer domiciled in Bermuda. • Gross premiums written of $1.34 billion, up 5.3% from $1.28 billion in the prior year, driven primarily by rate actions taken in all states with a policy count reduction of 7.2% driven substantially by a reduction in the number of Florida personal lines policies.
The disciplined underwriting and rating actions have reduced Florida personal lines TIV by 11.1% while reducing premiums in force by only 1.9%. o This disciplined underwriting approach resulted in a policy count reduction of 2.5% in other states while generating a 11.9% increase in premiums in force. • Improve portfolio diversity. o No state represents over 26% of the Company’s TIV. o The top four states grew TIV by an average 2.2% while the smallest five states grew by 56.7%. o As a result of diversification efforts, the top five personal lines states represented 79.2% of all TIV at fourth quarter 2022 compared to 79.8% of all TIV at fourth quarter 2021. • Provide coverages suitable to the market and return targets. o Offering Excess & Surplus lines (“E&S”) policies in California and Florida. o Expanding E&S to South Carolina during second quarter of 2023. o Continue to evaluate other states for E&S and other products. 29 Key Components of our Results of Operations Revenue Gross premiums written represent, with respect to a period, the sum of direct premiums written (premiums from policies written during the period, net of any midterm cancellations and renewals of voluntary policies) and assumed premiums written (primarily premiums from state fair plan policies), in each case prior to ceding premiums to reinsurers.
The disciplined underwriting and rating actions have reduced Florida personal lines TIV by 9.4% while reducing premiums in force by only 0.7% and improved the quality of our Florida book of business. o This disciplined underwriting approach resulted in a policy count reduction of 14.4% in other states, with a reduction in TIV by 6.3%, resulting in a reduction in premiums in force of only 3.4%. • Maintain a balanced and diversified portfolio. 32 o Selective diversification of the portfolio by product and state, which can change based on market conditions, serves to reduce performance volatility. o No state represents over 26.5% of the Company’s TIV. o TIV for the top four states declined by 18.4%, while TIV for all other states increased by 88.0%. o In-force premium for the four states with the highest TIV decreased by 4.6% while in-force premium for all other states grew by 89.4%. o As a result of diversification efforts, personal lines TIV for the five states with the highest TIV decreased by 5.2% from the prior year period and represented 71.6% of all TIV at December 31, 2023 compared to 71.9% of all TIV at December 31, 2022. • Provide coverages suitable to the market and return targets. o Offering Excess & Surplus lines (“E&S”) policies in California, Florida, and South Carolina.
The increase in gross premiums earned reflects higher gross premiums written over the last twelve months driven by rate increases, which resulted in higher average premium per policy, as described above. Ceded premiums Ceded premiums were $571.8 million for the year ended December 31, 2022, up 7.3% compared to $533.1 million in the prior year.
Gross premiums earned Gross premiums earned were $1.3 billion for the year ended December 31, 2023, up 9.5% compared to $1.2 billion in the prior year, reflecting higher gross premiums written over the last twelve months driven by a higher average premium per policy, use of inflation guard, and organic growth of the commercial residential business.
Net premiums earned Net premiums earned were $637.1 million for the year ended December 31, 2022, up 4.3% compared to $611.1 million in the prior year.
Ceded premiums Ceded premiums were $626.5 million for the year ended December 31, 2023, up 9.6% compared to $571.8 million in the prior year.
The following table quantifies the pro forma impact of hypothetical changes in our net loss reserves on our net income and stockholders’ equity as of and for the year ended December 31, 2022 (in thousands): Actual Low Estimate % Change from Actual High Estimate % Change from Actual Net Loss Reserves $ 372,126 $ 294,847 20.8 % $ 393,989 (5.9 )% Impact on: Net loss $ (154,363 ) $ (97,564 ) (36.8 )% $ (170,433 ) (10.4 )% Stockholders’ equity $ 131,039 $ 187,838 (43.3 )% $ 114,969 12.3 % Cash, cash equivalents and investments (1) $ 934,451 $ 991,250 (6.1 )% $ 918,381 1.7 % (1) Estimated cash, cash equivalents and investments is intended to reflect the impact of loss reserves, net of taxes.
The following table quantifies the pro forma impact of hypothetical changes in our net loss reserves on our net income and stockholders’ equity as of and for the year ended December 31, 2023 (in thousands): Actual Low Estimate % Change from Actual High Estimate % Change from Actual Net Loss Reserves $ 424,157 $ 347,145 18.2 % $ 461,208 (8.7 )% Impact on: Net income $ 45,307 $ 101,911 124.9 % $ 18,074 (60.1 )% Stockholders’ equity $ 220,280 $ 276,884 25.7 % $ 193,047 (12.4 )% Cash, cash equivalents and investments (1) $ 1,033,055 $ 1,089,659 5.5 % $ 1,005,822 (2.6 )% (1) Estimated cash, cash equivalents and investments is intended to reflect the impact of loss reserves, net of taxes.
See the section titled “Goodwill Impairment Charge” above and Note 3 of the notes to our consolidated financial statements for more detail on our impairment of goodwill.
Additionally, during 2023, we impaired named intangibles associated with our construction division due to management changes to its operations. See the section titled “ Goodwill Impairment Charge ” above and Note 3 " Intangible Assets, net " of the notes to our consolidated financial statements for more detail on our prior year impairment of our goodwill.
Year Ended December 31, 2022 2021 $ Change % Change Operating income $ (157,361 ) $ (68,064 ) $ (89,296 ) 131.2 % Interest expense, net 8,809 7,970 839 10.5 % Loss before income taxes (166,170 ) (76,035 ) (90,135 ) 118.5 % Benefit for income taxes (11,807 ) (1,307 ) (10,500 ) 803.4 % Net loss $ (154,362 ) $ (74,727 ) $ (79,635 ) 106.6 % Basic net (loss) income per share $ (5.86 ) $ (2.69 ) $ (3.17 ) 118.0 % Diluted net (loss) income per share $ (5.86 ) $ (2.69 ) $ (3.17 ) 118.0 % 34 Net loss Net loss for the year ended December 31, 2022 was $154.4 million, up 106.6% from net loss of $74.7 million in the prior year.
Year Ended December 31, 2023 2022 $ Change % Change (in thousands, expect per share amounts) Operating income (loss) $ 63,216 $ (157,361 ) $ 220,577 (140.2 %) Interest expense, net 11,210 8,809 2,402 27.3 % Income (loss) before taxes 52,006 (166,170 ) 218,175 (131.3 %) Provision (benefit) for income taxes 6,698 (11,807 ) 18,506 (156.7 %) Net income (loss) $ 45,308 $ (154,363 ) $ 199,670 (129.4 %) Basic net income (loss) per share $ 1.73 $ (5.86 ) $ 7.59 (129.5 %) Diluted net income (loss) per share $ 1.73 $ (5.86 ) $ 7.59 (129.5 %) Net income (loss) Net income for the year ended December 31, 2023 was $45.3 million, up 129.4% from net loss of $154.4 million in the prior year.
Timing of payments and actual amounts paid may be different due to changes to agreed-upon amounts for some obligations. Critical Accounting Policies and Estimates The following discussion and analysis presents the more significant factors that affected our financial conditions as of December 31, 2022 and 2021 and results of operations for each of the years then ended.
The weighted average effective duration of fixed maturities and short-term securities was 2.67 (3.14 excluding short-term securities) at December 31, 2023 and 3.18 (3.25 excluding short-term securities) at December 31, 2022. 45 Critical Accounting Policies and Estimates The following discussion and analysis presents the more significant factors that affected our financial conditions as of December 31, 2023 and 2022 and results of operations for each of the years then ended.
As of December 31, 2022, we held $280.9 million in cash and cash equivalents and $653.6 million in investments, compared to $359.3 million and $694.7 million as of December 31, 2021. The decrease in cash and cash equivalents was primarily driven by payment of reinsurance premiums, claim payment, stock repurchases, 35 and payment of dividends.
As of December 31, 2023, we held $463.6 million in cash and cash equivalents and $569.4 million in investments, compared to $280.9 million in cash and $653.6 million in investments as of December 31, 2022.
We plan to evaluate the impact of this legislation before growing exposures in the Florida personal lines market. The table below provides policy count, premiums-in-force, and TIV for Florida and all other states. Our goal is to reduce exposure in Florida given historical abusive claims practices.
Supplemental Information The Supplemental Information table below demonstrates progress on our initiatives by providing policy count, premiums-in-force, and TIV for Florida and all other states as of December 31, 2023 and comparing those metrics to December 31, 2022. One of our strategies has been to reduce personal lines exposure in Florida, given historical abusive claims practices.
Strategic sales of investments to yield realized gains in 2020 produced proceeds which were re-invested in 2021, driving up the cash used for investing activities for that period. Financing Activities Net cash used in financing activities for the year ended December 31, 2022 was $5.1 million, compared to net cash used of $17.3 million in the prior year.
Financing Activities Net cash provided by financing activities for the year ended December 31, 2023 was $14.5 million, compared to net cash used of $5.1 million in the prior year.
General and administrative expenses General and administrative expenses were $70.4 million for the year ended December 31, 2022, up 7.0% compared to $65.8 million in the prior year. The increase is primarily attributable to higher human capital costs, mostly driven by employee benefits costs, as well as the non-recurrence of a $1.5 million state tax credit recorded in 2021.
The increase is primarily attributable to acquisition costs associated with growth in gross premiums written and is partly offset by higher ceding commission income. General and administrative expenses General and administrative expenses were $77.8 million for the year ended December 31, 2023, up 10.5% compared to $70.4 million in the prior year.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe classify our fixed-maturity securities as available-for-sale and report any unrealized gains or losses, net of deferred income taxes, as a component of other comprehensive income within our stockholders’ equity. As such, any material temporary changes in their fair value can adversely impact the carrying value of our stockholders’ equity.
Biggest changeAs such, any material temporary changes in their fair value can adversely impact the carrying value of our stockholders’ equity. Unrealized gains and losses for any equity securities held are reported in our consolidated statement of operations as a component of net realized and unrealized gains and losses.
Also, issuers of below-grade securities usually have higher levels of debt and are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than investment grade issuers. Our equity investment portfolio at December 31, 2022 consisted of membership shares held of FHLB common stock which are carried at cost.
Also, issuers of below-grade securities usually have higher levels of debt and are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than investment grade issuers. Our equity investment portfolio at December 31, 2023 consisted of membership shares held of FHLB common stock which are carried at cost.
Item 7A. Quantitative and Qualitat ive Disclosures About Market Risk. Our investment portfolios at December 31, 2022, include interest rate-sensitive securities, mainly fixed income securities.
Item 7A. Quantitative and Qualitat ive Disclosures About Market Risk. Our investment portfolios at December 31, 2023, include interest rate-sensitive securities, mainly fixed income securities.
The following table illustrates the composition of our equity portfolio at December 31, 2022 (in thousands): % of Total Estimated Fair Value Estimated Fair value Stocks by sector: Financial $ — 0 % Energy — 0 % Other 1,514 100 % Subtotal $ 1,514 100 % Mutual Funds and ETF by type: Equity $ — 0 % Subtotal $ — 0 % Total $ 1,514 100 % Foreign Currency Exchange Risk At December 31, 2022, we did not have any material exposure to foreign currency related risk. 44
The following table illustrates the composition of our equity portfolio at December 31, 2023 (in thousands): % of Total Estimated Fair Value Estimated Fair value Stocks by sector: Financial $ — 0 % Energy — 0 % Other 1,666 100 % Subtotal $ 1,666 100 % Mutual Funds and ETF by type: Equity $ — 0 % Subtotal $ — 0 % Total $ 1,666 100 % Foreign Currency Exchange Risk At December 31, 2023, we did not have any material exposure to foreign currency related risk. 49
The duration of the financial instruments held in our portfolio that are subject to interest rate risk was 3.179 years at December 31, 2022 and 3.903 years at December 31, 2021. Credit risk results from uncertainty in a counterparty’s ability to meet its obligations. Credit risk is managed by maintaining a high credit quality fixed maturity securities portfolio.
The duration of the financial instruments held in our portfolio that are subject to interest rate risk was 2.67 years at December 31, 2023 and 3.18 years at December 31, 2022. Credit risk results from uncertainty in a counterparty’s ability to meet its obligations. Credit risk is managed by maintaining a high credit quality fixed maturity securities portfolio.
All else being equal, a rise in interest rates will decrease the fair value of our existing fixed income investments, and a decline in interest rates will increase the fair value of our existing fixed income investments. 42 However, new and reinvested money used to purchase fixed income securities would benefit from rising interest rates and would be negatively impacted by falling interest rates.
All else being equal, a rise in interest rates will decrease the fair value of our existing fixed income investments, and a decline in interest rates will increase the fair value of our existing fixed income investments.
The following table illustrates the impact of hypothetical changes in interest rates to the fair value of our fixed-maturity securities at December 31, 2022 (in thousands, except percentages): Hypothetical Change in Interest rates Estimated Fair Value After Change Change In Estimated Fair Value Percentage Increase (Decrease) in Estimated Fair Value 300 basis point increase $ 575,037 $ (60,535 ) (10 )% 200 basis point increase $ 595,204 $ (40,368 ) (6 )% 100 basis point increase $ 615,383 $ (20,189 ) (3 )% 100 basis point decrease $ 655,773 $ 20,201 3 % 200 basis point decrease $ 675,984 $ 40,412 6 % 300 basis point decrease $ 695,985 $ 60,413 10 % Credit risk can expose us to potential losses arising principally from adverse changes in the financial condition of the issuer of our fixed-maturity securities.
As of December 31, 2023, the estimated weighted-average credit quality rating of the fixed maturity securities portfolio was A+, at fair value, consistent with our average credit quality rating at December 31, 2022. 48 The following table illustrates the impact of hypothetical changes in interest rates to the fair value of our fixed-maturity securities at December 31, 2023 (in thousands, except percentages): Hypothetical Change in Interest rates Estimated Fair Value After Change Change In Estimated Fair Value Percentage Increase (Decrease) in Estimated Fair Value 300 basis point increase $ 508,833 $ (51,849 ) (9 )% 200 basis point increase $ 526,107 $ (34,575 ) (6 )% 100 basis point increase $ 543,390 $ (17,291 ) (3 )% 100 basis point decrease $ 577,982 $ 17,300 3 % 200 basis point decrease $ 595,291 $ 34,609 6 % 300 basis point decrease $ 612,296 $ 51,614 9 % Credit risk can expose us to potential losses arising principally from adverse changes in the financial condition of the issuer of our fixed-maturity securities.
Unrealized gains and losses for any equity securities held are reported in our consolidated statement of operations as a component of net realized and unrealized gains and losses. Interest Rate Risk On November 7, 2022, the Company amended its Credit Agreement to replace LIBOR with an alternative benchmark rate.
Interest Rate Risk On November 7, 2022, the Company amended its Credit Agreement to replace LIBOR with an alternative benchmark rate.
The following table presents the composition of our fixed-maturity portfolio by rating at December 31, 2022 (in thousands, except percentages): Comparable Rating Amortized Cost % of Total Amortized Cost Fair Value % of Total Fair Value AAA $ 127,865 18 % $ 116,694 18 % AA+, AA, AA- $ 346,935 49 % $ 307,965 48 % A+, A, A-1+ $ 132,405 19 % $ 121,391 19 % BBB+, BBB, BBB- $ 98,234 14 % $ 89,421 14 % Not rated $ 109 0 % $ 101 0 % $ 705,548 100 % $ 635,572 100 % 43 Below investment grade securities have different characteristics than investment grade corporate fixed-maturity securities.
The following table presents the composition of our fixed-maturity portfolio by rating at December 31, 2023 (in thousands, except percentages): Comparable Rating Amortized Cost % of Total Amortized Cost Fair Value % of Total Fair Value AAA $ 44,737 7 % $ 40,140 7 % AA+, AA, AA- $ 349,668 58 % $ 320,805 58 % A+, A, A-1+ $ 115,549 19 % $ 108,162 19 % BBB+, BBB, BBB- $ 96,277 16 % $ 91,192 16 % Not rated $ 415 0 % $ 383 0 % $ 606,646 100 % $ 560,682 100 % Below investment grade securities have different characteristics than investment grade corporate fixed-maturity securities.
We consider many factors when establishing our investment policy, including credit ratings, investment concentrations, regulatory requirements, anticipated fluctuation of interest rates, durations and market conditions in developing investment strategies. Investment securities are managed by a nationally recognized asset manager and are overseen by the investment committee appointed by our board of directors.
We consider many factors when establishing our investment policy, including credit ratings, investment concentrations, regulatory requirements, anticipated fluctuation of interest rates, durations and market conditions in developing investment strategies. We classify our fixed-maturity securities as available-for-sale and report any unrealized gains or losses, net of deferred income taxes, as a component of other comprehensive income within our stockholders’ equity.
Removed
As of December 31, 2022, the estimated weighted-average credit quality rating of the fixed maturity securities portfolio was A+, at fair value, consistent with our average credit quality rating at December 31, 2021.
Added
However, new and reinvested money used to purchase fixed income securities would benefit from rising interest rates and would be negatively impacted by falling interest rates.

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