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Heritage Insurance Holdings, Inc.

Heritage Insurance Holdings, Inc.HRTGEarnings & Financial Report

NYSE · Financials · Fire, Marine & Casualty Insurance

United Property & Casualty Insurance Company, Inc. is an American property and casualty insurance company with headquarters in Florida. It writes commercial, residential, homeowners’, and flood insurance policies in several coastal states.

What changed in Heritage Insurance Holdings, Inc.'s 10-K — 2023 vs 2024

Top changes in Heritage Insurance Holdings, Inc.'s 2024 10-K

303 paragraphs added · 312 removed · 246 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

66 edited+7 added−11 removed62 unchanged
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.
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; 10 • 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: 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: 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.
The systems also allow us to provide renewal notices, late payment notices, cancellation notices, endorsements and policies to our customers on a timely basis. Claims Administration We closely manage all aspects of the claims process, from processing the initial claim submission to providing remediation services for claims through our wholly-owned subsidiary, CAN, or preferred vendors.
The systems also allow us to provide renewal notices, late payment notices, cancellation notices, endorsements and policies to our customers on a timely basis. 6 Claims Administration We closely manage all aspects of the claims process, from processing the initial claim submission to providing remediation services for claims through our wholly-owned subsidiary, CAN, or preferred vendors.
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 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 continued disciplined underwriting, diversification of our book of business, and rate adequacy, as well as a robust reinsurance program.
Our investment policy sets guidelines that provide for a well-diversified investment portfolio that is compliant with insurance regulations applicable to the states in which we operate. Our investment objectives include liquidity, safety and security of principal, and returns.
Our investment policy sets guidelines that provide for a well-diversified investment portfolio that is compliant with insurance regulations 9 applicable to the states in which we operate. Our investment objectives include liquidity, safety and security of principal, and returns.
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.
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. 11 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.
Because our catastrophe reinsurance program incepts on June 1 annually, any variation in the cost of our reinsurance, whether due to changes to reinsurance rates or changes in the total insured value of our policy base, will be incurred over the twelve month period beginning with that date subject to certain adjustments. Government Regulation The insurance industry is extensively regulated.
Because our catastrophe reinsurance program commences on June 1 annually, any variation in the cost of our reinsurance, whether due to changes to reinsurance rates or changes in the total insured value of our policy base, will be incurred over the twelve month period beginning with that date subject to certain adjustments. Government Regulation The insurance industry is extensively regulated.
We are vertically integrated and control or manage substantially all aspects of insurance underwriting, customer service, actuarial analysis, distribution and claims processing and adjusting. We are led by a highly experienced and diverse management team with significant expertise in the residential property insurance industry and deep industry relationships.
We are vertically integrated and control or manage substantially all aspects of insurance underwriting, customer service, financial reporting and actuarial analysis, distribution and claims processing and adjusting. We are led by a highly experienced and diverse management team with significant expertise in the residential property insurance industry and deep industry relationships.
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.
For a discussion and summary of the activity in the liability for losses and LAE for the years ended December 31, 2024, 2023 and 2022, Refer to Note 13 “ Reserve for Unpaid Losses ” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K.
We provide competitive compensation and benefits as well as a 401(k) plan with employee matching opportunities, healthcare and insurance benefits, health savings and flexible spending accounts, telemedicine, paid time off, family leave, employee assistance programs and free education, training and development programs.
We provide competitive compensation and benefits as well as a 401(k) plan with employee matching opportunities, healthcare and insurance benefits, health savings and flexible spending accounts, telemedicine, paid time off including volunteer time off, family leave, employee assistance programs and free education, training and development programs.
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.
We also have established relationships with auto insurance carriers who package their auto product with our residential property insurance product which provides 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.
As part of the insurance holding company laws, we are required to file certain information with state insurance regulators in Florida, Rhode Island, and Hawaii, who may require us to file information regarding capital structure, financials, operations, and ownership. These state insurance regulators must approve any transactions between the Company and our affiliate entities.
As part of our obligations under applicable insurance holding company laws, we are required to file certain information with state insurance regulators in Florida, Rhode Island, and Hawaii, who may require us to file information regarding capital structure, financials, operations, and ownership. These state insurance regulators must also approve any transactions between the Company and our affiliate entities.
In addition, each year we evaluate whether to meet a portion of our reinsurance needs through the use of our reinsurance subsidiary, Osprey, which helps to manage our reinsurance expense and reduces our reliance on third-party reinsurance.
In addition, each year we evaluate whether to meet a portion of the reinsurance needs of our insurance company subsidiaries through the use of our reinsurance subsidiary, Osprey, which helps to manage our reinsurance expense and reduces our reliance on third-party reinsurance.
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.
Approximately 50.8% 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, 2024 and 2023, respectively.
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.
For each of the twelve month periods beginning June 1, 2024 and 2023, 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.
Best 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.
Best Rating S&P Rating 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 AA- Chaucer Insurance Company DAC (Bermuda) A g A Chubb Tempest Reinsurance Ltd. A++ AA DaVinci Reinsurance Ltd.
More selective underwriting has led to an intentional decline in policy count for our admitted personal lines product while achieving a higher average premium per policy through rate actions. Given our coastal exposure, which includes exposure to hurricanes and other severe weather events, our reinsurance program provides meaningful balance sheet protection and reduces earnings volatility.
More selective underwriting over the last several years has resulted in an intentional decline in policy count for our admitted personal lines product, while achieving a higher average premium per policy through rate actions. Given our coastal exposure, which includes exposure to hurricanes and other severe weather events, our reinsurance program provides meaningful balance sheet protection and reduces earnings volatility.
However, any state insurance regulator, in the states where we conduct business, has the discretion to conduct examinations to determine compliance with the applicable state insurance laws and regulations. The subject of the examinations may include forms, disclosures, marketing, sales practices, claims processes, underwriting, and various other practices and procedures.
However, any state insurance regulator in a state where we conduct business has the discretion to conduct examinations to determine compliance with applicable state insurance laws and regulations. The scope of such examinations varies and may include a review of forms, disclosures, marketing, sales practices, claims processes, underwriting, and various other practices and procedures.
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”).
As an example, we are required to maintain a cybersecurity program, incident response plan and information technology system safeguards that protect customer information under extensive cybersecurity regulations adopted by a number of states based on the insurance data security model issued by the National Association of Insurance Commissioners (“NAIC”).
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 three largest independent agency relationships represent approximately 15% of annualized premiums. 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 over 70 independent agencies in Hawaii.
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.
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 states of domicile.
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.
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.
Upon the conclusion of the examination, the state regulators may make the examination reports publicly available. Insurance Holding Company The Company is also subject to the insurance holding company laws in the states of domicile of our insurance company affiliates.
Upon the conclusion of the examination, state regulators will issue a report or order with findings and may make the examination reports publicly available. Insurance Holding Company The Company is also subject to insurance holding company laws in the states of domicile of our insurance company affiliates.
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.
In addition to purchasing excess of loss catastrophe reinsurance, we also purchased quota share, property per risk and facultative reinsurance. 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.
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.
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 260 full-time employees dedicated to claims management. This includes an in-house insurance defense team, claims examiners, and claims vendor management and mediation personnel.
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.
Best and S&P ratings as of December 31, 2024. 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. Reinsurer A.M.
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.
For the year ended December 31, 2024, we had gross premiums 3 written of $1.4 billion and operating income of $93.6 million. At December 31, 2024, we had total assets of $2.5 billion and total stockholders’ equity of $290.8 million.
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.
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.
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.
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 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.
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.
This includes personnel who in take claim information, an in-house insurance defense team, claims examiners, and claims vendor management and mediation personnel. We have additional contracted claims adjusting and loss mitigation resources in all states in which we conduct business and deploy those additional resources as needed. Our CAN subsidiary provides emergency claims and mitigation services to our policyholders.
We have additional full-time employees who take in claim information as well as contracted claims adjusting and loss mitigation resources in all states in which we conduct business and deploy those additional resources as needed. Our CAN subsidiary provides emergency claims and mitigation services to our policyholders.
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.
Strong, Conservative Capital Structure As of December 31, 2024, we had stockholders’ equity of $290.8 million and Heritage P&C, NBIC and Zephyr, had policyholder surplus, as defined by statutory accounting principles, of $176.7 million, $69.8 million and $39.1 million, respectively.
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.
As of December 31, 2024, we held $452.7 million in cash and cash equivalents and $663.4 million in investments, which were comprised of $655.6 million in fixed maturity securities, $1.9 million in common stock and $6.0 million in other invested assets.
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.
A+ A+ Arch Reinsurance Limited (obo Securis ILS Management Ltd) A+ A+ Hannover Rueck SE (obo Securis) A+ AA- SCOR Reinsurance Company A g A+ Swiss Reinsurance America Corporation A+ g AA- Transatlantic Reinsurance Company A++ AA+ Arch Reinsurance Limited (obo Chard Re) A+ A+ Hannover Rueck SE (obo Eskatos Capital Management) A+ AA- Houston Casualty Company (UK Branch) A++ g A+ International General Insurance Company Limited A g A- Liberty Specialty Markets Europe Two S.a.r.l (Paris)/Lloyd's Syndicate 4472 A AA- Lloyd's Syndicate 0033 (HIS) A AA- Lloyd's Syndicate 1084 (CSL) A AA- Lloyd's Syndicate 1301 (IGO) A AA- Lloyd's Syndicate 1729 (DUW) A AA- Lloyd's Syndicate 0623 (AFB) A AA- Lloyd's Syndicate 2623 (AFB) A AA- Lloyd's Syndicate 4020 (ARK) A AA- Lloyd's Syndicate 4444 (CNP) A AA- Taiping Reinsurance Company Limited A A Investments Our investments are managed by a third-party asset manager.
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.
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.
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.
Shaw Re (Bermuda) Ltd., Bermuda Collateralized Collateralized Eclipse Re Ltd/Segregated Account EC0047 Collateralized Collateralized Everest Reinsurance Company A+ g A+ Fidelis Insurance Bermuda Limited A g A- Group Ark Insurance Limited A g 0 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 IQUW Agency Bermuda Limited/Lloyd's Syndicate 1856 A AA- Munich Reinsurance America, Inc.
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.
We completed a transition to a new claims system used by each of our insurance company subsidiaries during 2023 and began our transition to a new policy and billing system in the third quarter of 2024, which we anticipate it to be fully operational by mid-2025.
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 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.
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.
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.
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.
Examinations State regulators in those jurisdiction where we are or may become licensed to do business 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 regulatory authorities also conduct periodic examinations into insurers’ business practices.
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.
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.
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.
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.
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 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.
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.
Approximately 23% 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 market and write commercial residential policies through a network of over 400 independent agents in Florida.
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.
NBIC writes personal residential insurance 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 490 retail 5 independent agents, representing over 800 agency locations, including several large agency networks. We also distribute indirectly to over 1,900 retail locations through eight wholesale agency relationships.
Managers and associates conduct periodic check-in discussions to encourage continuous performance feedback and improvement. These discussions also act to hold leaders accountable for creating an associate development culture. We are committed to the health and safety of our employees, which is critical to our success.
Our performance management and other processes are intended to align associate aspirations, interests, performance, and experiences with the talent needs that supports a healthy working environment for the success of our business. Managers and associates conduct periodic check-in discussions to encourage continuous performance feedback and improvement. These discussions also act to hold leaders accountable for creating an associate development culture.
During the period covered by this Form 10-K, we made all such materials available through our website as soon as reasonably practicable after filing such materials with the SEC. To access these filings, go to the Company’s website at https://investors.heritagepci.com and under the “Investors” heading, click on “Financial Information” then “SEC Filings”.
During the period covered by this Form 10-K, we made all such materials available through our website as soon as reasonably practicable after filing such materials with the SEC.
Accordingly, should future re-estimations to Hurricane Irma losses increase the expected loss reserves, all of the increase will be retained.
This commutation process resulted in a final determination of and payment for known, unknown or unreported claims relating to Hurricane Irma. Accordingly, should future re-estimations to Hurricane Irma losses increase the expected loss reserves, all of the increase will be retained.
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
To access these filings, go to the Company’s website at https://investors.heritagepci.com and under the “Investors” heading, click on “Financial Information” then “SEC Filings”. 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.
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.
Demotech and KBRA have assigned the following insurance financial strength ratings (“IFSR”) to the Company and our key operating subsidiaries. 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 each entity listed above is stable.
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.
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. Human Capital Growth and Development At December 31, 2024, we had 540 full-time and part-time employees. We do not have collective bargaining agreements relating to any of our associates.
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.
Best”) or Standard & Poor’s Financial Services LLC (“S&P”) or were fully collateralized, (iii) Citrus Re, a special purpose vehicle through which we sponsor catastrophe bonds, and (iv) our 7 captive reinsurance subsidiary, Osprey.
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, 2024, we had 376,002 personal residential policies in force, representing $1.1 billion of annualized premium, 2,891 commercial residential policies in force, representing $286.4 million of annualized premium, and 10,582 commercial general liability policies in force, representing $10.3 million of annualized premium, for a total of 389,475 policies and $1.4 billion of annualized premium.
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.
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.
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.
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. Over the last several years, we've consistently ranked in the top 25 writers of homeowners’ insurance business nationwide.
Our reinsurance agreements are prospective contracts. We record an asset, prepaid reinsurance premiums, and a liability, reinsurance payable, for the entire contract amount upon commencement of our new reinsurance agreements. We generally amortize our catastrophe reinsurance premiums over the 12-month contract period beginning on June 1 on a straight-line basis.
We also utilize facultative reinsurance to supplement our per risk reinsurance program where our capacity needs dictate. Our reinsurance agreements are prospective contracts. We record an asset, prepaid reinsurance premiums, and a liability, reinsurance payable, for the entire contract amount upon commencement of our new reinsurance agreements.
The State of Florida Office of Insurance Regulation (“FLOIR”) imposed certain additional solvency related requirements as a condition of receiving a certificate of authority for our Florida insurance company subsidiary. Finally, our insurance company affiliates are subject to state regulations or consent orders setting conditions related to various transactions, including intercompany transactions.
The Florida Office of Insurance Regulation (“FLOIR”), the state insurance regulator in one of our states of domicile, imposed certain solvency related requirements as a condition of receiving a certificate of authority for Florida domestic insurers, such as our Florida insurance company subsidiary.
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.
For the contract period ending May 31, 2025, our insurance company subsidiaries purchased an aggregate of $3.3 billion of catastrophe excess of loss reinsurance from the sources described above. 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.
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.
Of the $655.6 million of fixed maturity securities, $23.4 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.
Our Competition The market for residential property insurance is highly competitive in the states in which we conduct business. We primarily compete against single state or regional carriers, but also compete to varying degrees against large national carriers and state-sponsored homeowners’ insurance entities.
We primarily compete against single state or regional carriers, but also compete to varying degrees against large national carriers and state-sponsored homeowners’ insurance entities. 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 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 business results depend in part on our ability to successfully manage our human capital resources, including attracting, identifying and retaining key talent. In 2024, we remained focused on employee development though training opportunities, including courses which provide insurance designations, and other employee engagement activities.
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.
For the 2023 hurricane season only, we also obtained reinsurance from the Florida State Board of Administration's Reinsurance to assist Policyholders ("RAP") program which provided reinsurance for Florida admitted policies only. The RAP component of our reinsurance program was provided at no cost to the Company and is a non-recurring reinsurance program.
We've consistently ranked in the top 25 writers of homeowners’ insurance business nationwide. Our market share by state varies depending upon our premium volume and that of competing property insurance writers in those states.
Our market share by state varies depending upon our premium volume and that of competing property insurance writers in those states. Products and Distribution Heritage P&C writes personal residential insurance policies through a network of more than 2,496 independent agents in the states in which it is licensed.
A+ g AA- Odyssey Reinsurance Company A A Swiss Reinsurance America Corporation A+ g AA- Transatlantic Reinsurance Company A++ AA+ Validus Reinsurance, Ltd.
A+ g AA- Nautical Management Ltd./Markel Bermuda Limited A A Odyssey Reinsurance Company A+ A+ Renaissance Reinsurance Ltd.
Human Capital Growth and Development At December 31, 2023, we had 566 full-time and part-time employees. We do not have collective bargaining agreements relating to any of our associates. Our employees are our most valuable asset, and we are committed to building a workforce that supports each employee’s unique professional journey.
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.
Our CAN subsidiary performs both catastrophe and non-catastrophe related repair and remediation services.
Our CAN subsidiary performs both catastrophe and non-catastrophe related 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.
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Demotech and KBRA have assigned the following insurance financial strength ratings (“IFSR”) to the Company and our key operating subsidiaries.
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We are licensed, but inactive, in Pennsylvania. We conduct our operations as a single operating and reporting segment.
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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.
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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. Our Competition The market for residential property insurance is highly competitive in the states in which we conduct business.
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ESG Strategy The advancement of the environmental, social and governance (“ESG”) framework is intended to promote awareness, sustainable and inclusive development of insurance markets which has been an area of focus for standard setters and regulatory agencies at the state and federal level. We continue to progress in integrating ESG strategies into our business and operations.
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Note: *** 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. For consistency, efficiency, and compliance with our underwriting standards, our underwriting process is generally automated with predetermined criteria programmed into our policy system.
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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.
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We generally amortize our catastrophe reinsurance premiums over the 12-month contract period beginning on June 1 on a straight-line basis. 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.
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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.
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Finally, our insurance company affiliates are subject to state statutes, regulations and consent orders setting conditions related to various transactions, including intercompany transactions. In some instances, our insurance company affiliates are subject to consent orders governing the outcomes of financial or market conduct examinations . We are in full compliance with all consent orders.
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We continue to enhance our ESG policies as we assess, analyze and identify critical topics. We continue to monitor the expansion of these policies to ensure compliance with future regulations and seek to implement best practices in response to any emerging guidance.
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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.
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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.
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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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Such volatility may be affected by various factors and events, such as: o our operating results, including a shortfall in revenues or operating performance from that expected by securities analysts and investors; o recognition of large unanticipated accounting charges, such as impairment charges; o changes in securities analysts’ estimates of our financial performance or the financial performance of our competitors or companies in our industry generally; o a downgrade of our Demotech or KBRA rating; o the announcement of a material event or anticipated event involving us or our industry or the markets in which we operate; and o the other risk factors described in this Annual Report.
Such volatility may be affected by various factors and events, such as: • our operating results, including a shortfall in revenues or operating performance from that expected by securities analysts and investors; • recognition of large unanticipated accounting charges, such as impairment charges; • changes in securities analysts’ estimates of our financial performance or the financial performance of our competitors or companies in our industry generally; • a downgrade of our Demotech or KBRA rating; • the announcement of a material event or anticipated event involving us or our industry or the markets in which we operate; and • the other risk factors described in this Annual Report.
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.
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.
In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination, such as a merger, with a person or group owning 15% or more of the corporation’s voting stock for a period of three years following the date the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner.
In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination, such as a merger, with a person or group owning 15% or more of the corporation’s voting stock for a period of three years 24 following the date the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner.
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.
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. 17 These developments and others could make the property and casualty insurance marketplace more competitive by increasing the supply of insurance available.
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.
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.
A significant catastrophe, or a series of catastrophes, could also have an adverse effect on our reinsurers. Catastrophes can be caused by various events, including hurricanes, severe convective storms, tropical storms, snowstorms, tornadoes, earthquakes, hailstorms, explosions, power outages, fires and by man-made events, such as terrorist attacks.
A significant catastrophe, or a series of catastrophes, could also have an adverse effect on our reinsurers. Catastrophes can be caused by various events, including hurricanes, severe convective storms, tropical storms, snowstorms, tornadoes, earthquakes, hailstorms, explosions, power outages, fires (including wildfires) and by man-made events, such as terrorist attacks.
Any failure to effectively manage the claims adjustment process, including failure to pay claims accurately, could lead to material litigation, undermine our reputation in the marketplace, impair our corporate image and negatively affect our financial results. Additionally, as a component of the claims process, we leverage CAN’s vendor network to provide repair and remediation services to the policyholder.
Any failure to effectively manage the claims adjustment process, including failure to pay claims accurately, could lead to material litigation, undermine our reputation in the marketplace, impair our corporate image and negatively affect our financial results. Additionally, as a component of the claims process, we leverage CAN’s vendor network to provide remediation services to the policyholder.
Any changes in existing risk-based capital requirements, minimum statutory capital requirements, or applicable writings ratios may require us to increase our statutory capital levels, which we may be unable to do. Litigation or regulatory actions could have a material adverse impact on us. From time to time, we are subject to civil or administrative actions and litigation.
Any changes in existing risk-based capital requirements, minimum statutory capital requirements, or applicable writings ratios may require us to increase our statutory capital levels, which we may be unable to do. 22 Litigation or regulatory actions could have a material adverse impact on us. From time to time, we are subject to civil or administrative actions and litigation.
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.
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.
In addition to these considerations, changes in the frequency and severity of losses suffered by insureds and insurers, including changes resulting from multiple and/or catastrophic weather events, may affect the cycles of the insurance business significantly. We cannot predict whether market conditions will improve, remain constant or deteriorate.
In addition to these considerations, changes in the frequency and severity of losses suffered by insureds and insurers, including changes resulting from multiple and/or catastrophic weather events, may affect the cycles of the insurance business significantly. 15 We cannot predict whether market conditions will improve, remain constant or deteriorate.
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.
Further, in accordance with laws and regulatory requirements in various states in which we conduct 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.
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.
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.
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.
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.
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.
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.
The failure of these systems or disruption in the supply of electricity could interrupt our operations and result in a material adverse effect on our business. The development and expansion of our insurance business is dependent upon the successful development and implementation of advanced technology, including modeling, underwriting and information technology systems.
The failure of these systems or disruption in the supply of electricity could interrupt our operations and result in a material adverse effect on our business. 25 The development and expansion of our insurance business is dependent upon the successful development and implementation of advanced technology, including modeling, underwriting and information technology systems.
These regulations include (i) the creation of “market assistance plans” under which insurers are induced to provide certain coverages, (ii) restrictions on the ability of insurers to rescind or otherwise cancel certain policies in mid-term or to nonrenew policies at their scheduled expirations, (iii) advance notice requirements or limitations imposed for certain policy non renewals, (iv) limitations upon increases or decreases in rates permitted to be charged, (v) expansion of governmental involvement in the insurance market and (vi) increased regulation of insurers’ policy administration and claims handling practices.
These regulations include (i) the creation of “market assistance plans” under which insurers are induced to provide certain coverages, (ii) restrictions on the ability of insurers to rescind or otherwise cancel certain policies in mid-term or to non-renew policies at their scheduled expirations, (iii) advance notice requirements or limitations imposed for certain policy non renewals, (iv) limitations upon increases or decreases in rates permitted to be charged, (v) expansion of governmental involvement in the insurance market and (vi) increased regulation of insurers’ policy administration and claims handling practices.
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.
The final amount paid by the FHCF could vary from the 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.
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.
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.
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.
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. 21 Various regulatory and legislative bodies have adopted or proposed new laws, regulations or orders to address the cyclical nature of the insurance industry, catastrophic events and insurance capacity and pricing.
Item 1A. Ri sk Factors Set forth below are certain risk factors that could harm our business, results of operations and financial condition. You should carefully read the following risk factors, together with the financial statements, related notes and other information contained in this Annual Report on Form 10-K.
Item 1A. Risk Factors Set forth below are certain risk factors that could harm our business, results of operations and financial condition. You should carefully read the following risk factors, together with the financial statements, related notes and other information contained in this Annual Report on Form 10-K.
These regulations relate to, among other things, the approval of policy forms and premium rates, our conduct in the marketplace, our compliance with solvency and financial reporting requirements, transactions with our affiliates, limitations on the amount of business we can write, the amount of dividends we can pay to stockholders, and the types of investments we can make.
These regulations relate to, among other things, the approval of policy forms and premium rates, our conduct in the marketplace, our compliance with solvency and financial reporting requirements, transactions with our affiliates, corporate governance requirements, limitations on the amount of business we can write, the amount of dividends we can pay to stockholders, and the types of investments we can make.
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.
Insurance holding company regulations generally provide, in part, 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.
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.
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.
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.
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.
Our total cost of obtaining reinsurance over the last few years has increased, both on an absolute basis and as a percentage of premiums-in-force, and is expected to continue to increase in the future. We cannot be assured that reinsurance will remain continuously available to us in the amounts we consider sufficient and at prices acceptable to us.
Our total cost of obtaining reinsurance over the last few years has increased, both on an absolute basis and as a percentage of premiums-in-force, and could increase in the future. We cannot be assured that reinsurance will remain continuously available to us in the amounts we consider sufficient and at prices acceptable to us.
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 of December 31, 2024, 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%. Our subsidiary, NBIC, has agreed to maintain a risk-based capital ratio requirement of 325%.
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.
At December 31, 2024, approximately 99% of our total investments were 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.
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.
In total, for the period from June 1, 2024 through May 31, 2025, we have purchased an aggregate limit of $3.3 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.
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
The unexpected loss of key employees 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. Unresolved Staff Comments None
While we believe FHCF currently has adequate capital and financing capacity to meet its reinsurance obligations, there can be no assurance that it will be able to meet its obligations in the future, and any failure to do so could have a material adverse effect on our liquidity, financial condition and results of operations.
While we believe FHCF currently has adequate capital and financing capacity to meet its reinsurance obligations, there can be no assurance that it will be able to meet its obligations in the future, and any failure to do so could have a material adverse effect on our liquidity, financial condition and results of operations. 16 We carry a significant amount of intangible assets on our consolidated balance sheets.
We may also use our common stock to pay for acquisitions. If the owners of potential acquisition candidates are not willing to accept our common stock in exchange for their businesses, our acquisition prospects could be limited.
If the owners of potential acquisition candidates are not willing to accept our common stock in exchange for their businesses, our acquisition prospects could be limited.
We carry a significant amount of intangible assets on our consolidated balance sheets. Earnings for future periods may be impacted by impairment charges for intangible assets. We have a significant amount of intangible assets that could be subject to impairment.
Earnings for future periods may be impacted by impairment charges for intangible assets. We have a significant amount of intangible assets that could be subject to impairment.
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.
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.
Any future acquisitions may entail a number of risks that could adversely affect our business and the market price of our common stock, including the integration of the acquired operations and information systems, diversion of management's attention, risks of entering new market regions in which we have limited experience, adverse short-term effects on our reported operating results, the potential loss of key employees of acquired businesses, changes for impairment of long-terms assets or goodwill and risks associated with unanticipated liabilities In connection with an acquisition, we could incur debt, recognize amortization expenses related to intangible assets, have to take large and immediate write-offs, including but not limited to goodwill impairment, and assume liabilities.
Any future acquisitions may entail a number of risks that could adversely affect our business and the market price of our common stock, including the integration of the acquired operations and information systems, inability to recognize anticipated benefits of such acquisitions, diversion of management's attention, risks of entering new market regions in which we have limited experience, adverse short-term effects on our reported operating results, the potential loss of key employees of acquired businesses, changes for impairment of long-term assets or goodwill and risks associated with unanticipated liabilities.
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 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. 26 The development and implementation of new technologies will require an additional investment of our capital resources in the future.
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.
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.
Many legal actions and proceedings have been brought on behalf of classes of complainants, which can increase the size of judgments. The propensity of policyholders and third-party claimants to litigate and the willingness of courts to expand causes of loss and the size of awards may render the loss reserves of our insurance subsidiaries inadequate for current and future losses.
The propensity of policyholders and third-party claimants to litigate and the willingness of courts to expand causes of loss and the size of awards may render the loss reserves of our insurance subsidiaries inadequate for current and future losses.
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.
As of December 31, 2024, 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. We also have in-force premiums from policies in the State of California, which has been impacted by wildfires.
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.
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.
In some instances, these changes may not become apparent until sometime after we have issued insurance policies that are affected by the changes. As a result, the full extent of liability under our insurance policies may not be known at the time such policies are issued or renewed, and our financial position and results of operations may be adversely affected.
As a result, the full extent of liability under our insurance policies may not be known at the time such policies are issued or renewed, and our financial position and results of operations may be adversely affected. The failure of the risk mitigation strategies we utilize could have a material adverse effect on our financial condition or results of operations.
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.
For example, for our southeastern personal lines portfolio, approximately 23% 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.
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.
Compared to recent history, interest rates have been above historical levels, which may decrease our net income and cash flows. 23 Our credit agreement contains restrictions that can limit our flexibility in operating our business. The agreement governing our credit facilities contains various covenants that limit our ability to engage in certain transactions.
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 rely on our claims department and any outsourced claims resources to facilitate and oversee the claims adjustment process for our policyholders.
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.
In the northeastern U.S., our three largest agency relationships represent approximately 15% of our annualized premiums, and approximately 51% of our Hawaiian independent agencies are affiliated with three large multi-producer agencies.
All ratings are subject to continuous review; therefore, the retention of these ratings cannot be assured. A downgrade in any of these ratings could have a material adverse effect on our competitive position, the marketability of our product offerings and our ability to grow in the marketplace.
A downgrade in any of these ratings could have a material adverse effect on our competitive position, the marketability of our product offerings and our ability to grow in the marketplace. 19 If we are unable to expand our business because our capital must be used to pay greater than anticipated claims, our financial results may suffer.
If we are unable to expand our business because our capital must be used to pay greater than anticipated claims, our financial results may suffer. Further, we may require additional capital in the future which may not be available or may only be available on unfavorable terms.
Further, we may require additional capital in the future which may not be available or may only be available on unfavorable terms.
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.
The Florida legislature enacted several reform bills in the last several years with the intention to limit AOB and frivolous litigation. These legislative changes have positively impacted the Florida property insurance market by curtailing AOB and litigated claims abuses.
The failure of the risk mitigation strategies we utilize could have a material adverse effect on our financial condition or results of operations.
It is also possible that losses could manifest themselves in ways that we do not anticipate and that our risk mitigation strategies are not designed to address. Such a manifestation of losses could have a material adverse effect on our financial condition and results of operations.
Removed
For example, in 2007, Florida enacted legislation that led to rate levels in the private insurance market that we believe, in many instances in the past, were inadequate to cover the related underwriting risk. This same legislation required Citizens Property Insurance (“Citizens”) to reduce its premium rates and begin competing against private insurers in the Florida residential property insurance market.
Added
For example, we expect to incur approximately $35.0-$40.0 million of pre-tax catastrophe losses, net of reinsurance, associated with the 14 wildfires that affected Southern California during the first quarter of 2025.
Removed
Florida lawmakers may continue to enact or retain legislation that suppresses the rates of Citizens, further adversely impacting the private insurance market and increasing the likelihood that it must levy assessments on private insurance companies and ultimately on Florida consumers.
Added
Further, an increase in frequency of severe weather events may cause an increase in credit exposure to the reinsurers with which we transact business. We may not be able to collect reinsurance amounts due to us from the reinsurers with which we have contracted.
Removed
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
In connection with an acquisition, we could incur debt, recognize amortization expenses related to intangible assets, have to take large and immediate write-offs, including but not limited to goodwill impairment, and assume liabilities. We may also use our common stock to pay for acquisitions.
Removed
The agreement governing our credit facilities contains various covenants that limit our ability to engage in certain transactions.
Added
We write personal and commercial insurance policies through a network of independent agents. As a result, our business is dependent on the marketing efforts of these independent agents, and our agency relationships are concentrated.
Added
If our products, pricing and commissions do not remain competitive, we may find it more difficult to attract business from existing or new independent agents to sell our products. 18 The failure of our claims department to effectively manage or remediate claims could adversely affect our insurance business, financial results and capital requirements.
Added
All ratings are subject to continuous review; therefore, the retention of these ratings cannot be assured.
Added
There can be no assurance that this legislation will further reduce the future impact of AOB or litigated claims practices and legislative changes could be reversed in whole or in party in the future. Many legal actions and proceedings have been brought on behalf of classes of complainants, which can increase the size of judgments.
Added
In some instances, these changes may not become apparent until sometime after we have issued insurance policies that are 20 affected by the changes.
Added
Florida lawmakers may impact the rates of Citizens Property Insurance through legislation, which may impact the private insurance market.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Management’s Expertise 27 Our IT AVP also ensures he is continually informed about the latest developments in cybersecurity, including potential threats and innovative risk management techniques. Staying informed on developments in the cyber industry is crucial to the Company’s effective prevention, detection, mitigation and remediation of any cybersecurity incidents.
Management’s Expertise Our IT AVP also ensures he is continually informed about the latest developments in cybersecurity, including potential threats and innovative risk management techniques. Staying informed on developments in the cyber industry is crucial to the Company’s effective prevention, detection, mitigation and remediation of any cybersecurity incidents.
In general, the Company seeks to address cybersecurity risks through a comprehensive, cross-functional approach that is focused on preserving the confidentiality, security and availability of the information that the Company collects and stores by identifying, preventing and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur.
In general, the Company seeks to address cybersecurity risks through a comprehensive, cross-functional approach that is focused on preserving the 27 confidentiality, security and availability of the information that the Company collects and stores by identifying, preventing and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur.
The ISC is charged with developing and implementing policies and procedures for incident response handling, monitoring, and addressing security risks on an ongoing basis. The ISC is responsible for deploying technology and information security experts to monitor security risks and advise, contain, analyze, and report on security incidents, as necessary.
The ISC is charged with developing and implementing policies and procedures for incident response handling, monitoring, and addressing security risks on an ongoing basis. The ISC is responsible for deploying technology and information security experts to monitor security risks and advise, contain, analyze, and report on security 28 incidents, as necessary.
Cybersecurity risk management and strategy As one of the elements of the Company’s overall risk management program, the Company’s cybersecurity program is focused on the following key areas: 26 • Technical Safeguards: The Company deploys technical safeguards that are designed to protect the Company’s information systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems, anti-malware functionality and access controls, which are evaluated and improved through vulnerability assessments and cybersecurity threat intelligence. • Incident Response and Recovery Planning: The Company has established and maintains incident response and recovery plans to timely, consistently, and compliantly address cybersecurity threats that may occur despite the Company’s safeguards , and such plans are tested and evaluated on a regular basis. • Third-Party Risk Management: The Company maintains a risk-based approach to identifying and overseeing cybersecurity risks presented by third parties, including vendors, service providers and other external users of the Company’s systems, as well as the systems of third parties that could adversely impact the Company’s business in the event of a cybersecurity incident affecting those third-party systems. • Outside Consultants: The Company engages various outside consultants, including contractors, assessors, auditors, outside attorneys and other third parties, to among other things : • Assist in the design, implementation, and testing of our cybersecurity program, policies and procedures; • monitor Company networks, servers and endpoints to identify vulnerabilities; • perform assessments on the Company’s cybersecurity measures, including audits and independent reviews of the Company’s information security control environment and operating effectiveness; • obtain information of a cybersecurity incident and isolate compromised systems and electronic data from further exposure; • determine and execute mitigation and remediation options and plans; and • ensure ongoing compliance with applicable legal and regulatory requirements, including notification to required individuals and regulatory bodies in the event of the discovery of an information security breach as defined under applicable laws, and timely and adequate disclosure under applicable SEC rules. • Education and Awareness: The Company provides annual training for personnel regarding cybersecurity threats as a means to equip the Company’s personnel with effective tools to address cybersecurity threats, and to communicate the Company’s evolving information security policies, standards, processes and practices.
Cybersecurity risk management and strategy As one of the elements of the Company ’s overall risk management program, the Company’s cybersecurity program is focused on the following key areas: • Technical Safeguards: The Company deploys technical safeguards that are designed to protect the Company’s information systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems, anti-malware functionality and access controls, which are evaluated and improved through vulnerability assessments and cybersecurity threat intelligence. • Incident Response and Recovery Planning: The Company has established and maintains incident response and recovery plans to timely, consistently, and compliantly address cybersecurity threats that may occur despite the Company’s safeguards , and such plans are tested and evaluated on a regular basis. • Third-Party Risk Management: The Company maintains a risk-based approach to identifying and overseeing cybersecurity risks presented by third parties, including vendors, service providers and other external users of the Company’s systems, as well as the systems of third parties that could adversely impact the Company’s business in the event of a cybersecurity incident affecting those third-party systems. • Outside Consultants: The Company engages various outside consultants, including contractors, assessors, auditors, outside attorneys and other third parties, to among other things : ◦ Assist in the design, implementation, and testing of our cybersecurity program, policies and procedures; ◦ monitor Company networks, servers and endpoints to identify vulnerabilities; ◦ perform assessments on the Company’s cybersecurity measures, including audits and independent reviews of the Company’s information security control environment and operating effectiveness; ◦ obtain information of a cybersecurity incident and isolate compromised systems and electronic data from further exposure; ◦ determine and execute mitigation and remediation options and plans; and ◦ ensure ongoing compliance with applicable legal and regulatory requirements, including notification to required individuals and regulatory bodies in the event of the discovery of an information security breach as defined under applicable laws, and timely and adequate disclosure under applicable SEC rules. ◦ Education and Awareness: The Company provides annual training for personnel regarding cybersecurity threats as a means to eq uip the Company’s personnel with effective tools to address cybersecurity threats, and to communicate the Company’s evolving information security policies, standards, processes and practices .
Item 1C. Cybersec urity The Audit Committee (“Audit Committee”) of the Company’s Board of Directors (the “Board”) is actively involved in oversight of the Company’s risk management program, which includes the identification, assessment and management of material cybersecurity risks.
Item 1C. Cybersecurity The Audit Committee (“Audit Committee”) of the Company’s Board of Directors (the “Board”) is actively involved in oversight of the Company’s risk management program, which includes the identification, assessment and management of material cybersecurity risks.

Item 2. Properties

Properties — owned and leased real estate

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Pr 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.
Properties The following is a summary of our offices and locations: Location Business Use Square Footage Leased or Owned 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 67% of the building in Clearwater is leased to unaffiliated tenants.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Item 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 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 Safety Disclosures Not applicable 29 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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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, 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.
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, 2019 through 2024, assuming an initial investment of $100 and reinvestment of dividends with the performance among Heritage, NASDAQ Insurance Index and Russell 2000 Index.
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
Dec-19 Dec-20 Dec-21 Dec-22 Dec-23 Dec-24 Heritage Insurance Holdings Inc. 100 57 69 42 43 68 NASDAQ Insurance Index 100 112 121 137 144 184 Russell 2000 Index 100 119 146 165 115 150 Item 6. [Reserved] 30
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.
Item 5. Market For Registrant’s Common Equity, Related Stockholder 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, 2025, we had 30,608,039 shares of common stock outstanding, including 1,335,923 shares of restricted stock for which restrictions have not lapsed.
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.
Holders of Record As of March 4, 2025, there were 63 holders of record of our common stock. Dividends We have not declared quarterly dividends since the first quarter of 2022.

Item 7. Management's Discussion & Analysis

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

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The Convertible Notes are senior unsecured obligations of the Company that rank senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the Convertible Notes; equal in right of payment to the Company’s unsecured indebtedness that is not so subordinated; effectively junior to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness or other liabilities incurred by the Company’s subsidiaries other than the Notes Guarantor, which fully and unconditionally guarantee the Convertible Notes on a senior unsecured basis.
The Convertible Notes are senior unsecured obligations of the Company that rank senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the 42 Convertible Notes; equal in right of payment to the Company’s unsecured indebtedness that is not so subordinated; effectively junior to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness or other liabilities incurred by the Company’s subsidiaries other than the Notes Guarantor, which fully and unconditionally guarantee the Convertible Notes on a senior unsecured basis.
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.
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.
Our reserves for unpaid losses and loss adjustment expenses represent the estimated ultimate cost of resolving all reported claims plus all losses we incurred related to insured events that we assume have occurred as of the reporting date, but that policyholders have not yet reported to us (which are commonly referred to as incurred but not reported, or “IBNR”).
Our reserves for unpaid losses and loss adjustment expenses represent the estimated ultimate cost of resolving all reported claims plus all losses we incurred related to insured 33 events that we assume have occurred as of the reporting date, but that policyholders have not yet reported to us (which are commonly referred to as incurred but not reported, or “IBNR”).
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.
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.
As a result of this timing, it can take up to twenty-four months for the complete impact of a rate change to be fully earned in our financial statements. For that reason, we account for inflation in our rate indications and filings with our regulators.
As a result of this 32 timing, it can take up to twenty-four months for the complete impact of a rate change to be fully earned in our financial statements. For that reason, we account for inflation in our rate indications and filings with our regulators.
The subsidiary is permitted to withdraw any portion of the pledged collateral over the minimum collateral requirement at any time, other than in the event of a default by the subsidiary. The proceeds from the loan were used to prepay the Company’s Senior Secured Notes due 2023 in 2018.
The subsidiary is permitted to withdraw any portion of the pledged collateral over the minimum collateral requirement at any time, other than in the event of a default by the subsidiary. The proceeds from the loan were used to prepay the Company’s Senior Secured Notes due 2023.
Our accounting policy is to allocate ceding commission between policy acquisition costs and general and administrative expenses for financial reporting purposes based upon the proportion these costs bear to production of new business.
Our accounting policy is to allocate ceding commission income between policy acquisition costs and general and administrative expenses for financial reporting purposes based upon the proportion these costs bear to production of new business.
The principal amount of the Term Loan Facility amortizes in quarterly installments, which began with the close of the fiscal quarter ending March 31, 2019, in an amount equal to $1.9 million per quarter, payable quarterly, decreasing to $875,000 per quarter commencing with the quarter ending December 31, 2021, and increasing to $2.4 million per quarter commencing with the quarter ending December 31, 2022, with the remaining balance payable at maturity.
The principal amount of the Term Loan Facility amortizes in quarterly installments, which began with the close of the fiscal quarter ended March 31, 2019, in an amount equal to $1.9 million per quarter, payable quarterly, decreasing to $875,000 per quarter commencing with the quarter ended December 31, 2021, and increasing to $2.4 million per quarter commencing with the quarter ended December 31, 2022, with the remaining balance payable at maturity.
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.
For a discussion of the year ended December 31, 2023 compared to the year ended December 31, 2022, 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, 2023, which was filed with the SEC on March 13, 2024.
The effective tax rate for 2023 benefitted from a $6.4 million reduction in the valuation allowance against our Osprey net deferred tax assets that had been established in the prior year, as operating income at Osprey for the year ended December 31, 2023 resulted in sufficient positive evidence to release the valuation allowance on the Osprey net deferred assets.
The effective tax rate for 2023 benefited from a $6.4 million reduction in the valuation allowance against our Osprey net deferred tax assets that had been established in the prior year, as operating income at Osprey for the year ended December 31, 2023 resulted in sufficient positive evidence to release the valuation allowance on the Osprey net deferred assets.
The Company received notice from the Depositary for the Convertible Notes that, on July 29, 2022, $10.9 million aggregate principal amount of the Convertible Notes has been validly tendered in accordance with the terms of the indenture and the Company’s notice with respect to the optional put right of the Convertible Notes, and the Company has requested that the Trustee cancel the Convertible Notes tendered.
The Company received notice from the Depository for the Convertible Notes that, on July 29, 2022, $10.9 million aggregate principal amount of the Convertible Notes has been validly tendered in accordance with the terms of the indenture and the Company’s notice with respect to the optional put right of the Convertible Notes, and the Company has requested that the Trustee cancel the Convertible Notes tendered.
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.
At December 31, 2024, 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.
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.
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, 2024 and 2023. Reinsurance. We follow the industry practice of reinsuring a portion of our risks.
The increase in average premium includes rate changes, inclusion of inflation in premiums as described below, and in the mix of business written. We experienced intentional growth of our commercial residential business during 2023 and this line of business generates significantly higher average premium per policy.
The increase in average premium includes rate changes, inclusion of inflation in premiums as described below, and changes in the mix of business written. We experienced intentional growth of our commercial residential business during 2024 and this line of business generates significantly higher average premium per policy.
The sensitivity analysis performed as of December 31, 2023 presents hypothetical losses in cash flows, earnings and fair values of market sensitive instruments which were held by as of the year ended December 31, 2023 and are sensitive to changes in interest rates.
The sensitivity analysis performed as of December 31, 2024 presents hypothetical losses in cash flows, earnings and fair values of market sensitive instruments which were held by as of the year ended December 31, 2024 and are sensitive to changes in interest rates.
We continue to experience rising inflation in the form of increased labor and material costs, which drive up claim costs throughout all states in which we conduct business. Our Florida personal lines market is also seeing claim costs impacted by litigated claims, which substantially increases loss costs thereby driving up rates for the insurance buying public.
We continue to experience rising inflation in the form of increased labor and material costs, which drive up claim costs throughout all states in which we conduct business. Our Florida personal lines market was seeing claim costs impacted by litigated claims, which substantially increases loss costs thereby driving up rates for the insurance buying public.
Quantitative and Qualitative Disclosures About Market Risk ) to determine the effects that market risk exposures could have on the Company's future portfolio's earnings, fair value or cash flow as of December 31, 2023. Market risk represents the risk of changes in the fair value of financial instrument and consists of several components, including liquidity, basis and price risks.
Quantitative and Qualitative Disclosures About Market Risk) to determine the effects that market risk exposures could have on the Company's future portfolio's earnings, fair value or cash 44 flow as of December 31, 2024. Market risk represents the risk of changes in the fair value of financial instrument and consists of several components, including liquidity, basis and price risks.
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.
The outstanding balance as of December 31, 2024 of non-affiliated Notes was $885,000. On August 1, 2022, the Company made payments 43 for the principal amount of the Convertible Notes tendered and unpaid interest in the aggregate amounts of $10.9 million and $320,041, respectively.
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.
As of December 31, 2024 and 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 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.
Overview of 2024 Financial Results In the following section, we discuss our financial condition and results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023.
The Company and the Guarantors are party to a Pledge and Security Agreement, (as amended from time to time the “Security Agreement”), in favor of Regions Bank, as collateral agent.
The Company and the Guarantors are party to a Pledge and Security Agreement, (as amended from time to time the “Security Agreement”), in favor of a collateral agent.
Ceding commission income is deferred and earned over the contract period. The amount and rate of ceding commissions earned on the net quota share contract can slide within a prescribed minimum and maximum, depending on loss performance and how future losses develop.
Deferred Policy Acquisition Costs. Ceding commission income is deferred and earned over the contract period. The amount and rate of ceding commissions earned on the net quota share contract can slide within a prescribed minimum and maximum, depending on loss performance and how future losses develop.
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.
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.
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 effective tax rate can vary from the 25.9% 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.
Gross premiums earned represent the total premiums earned during a period from policies written. Premiums associated with new and renewal policies are earned ratably over the twelve-month term of the policy and premiums associated with assumed policies are earned ratably over the remaining term of the policy. Ceded premiums represent the cost of our reinsurance during a period.
Gross premiums earned represent the total premiums earned during a period from policies written. Premiums associated with new and renewal policies are earned ratably over the twelve-month term of the policy and premiums associated with assumed policies are earned ratably over the remaining term of the policy. C eded premiums represent the cost of our reinsurance during a period.
We mitigate these conditions by continued exposure management, implementation of increased rates and the use of inflation guard, which ensures appropriate replacement cost values for our business to reflect the inflationary impact on costs to repair properties. Use of inflation guard impacts both premium and TIV.
We mitigate these conditions by continued exposure management, implementation of increased rates and the use of inflation guard, which ensures appropriate replacement cost values for our business to reflect the inflationary impact on costs to repair properties. Use of inflation guard impacts both premium and total insured value of properties.
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.
Impairment of Other Intangibles We evaluate 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 other intangible assets may exceed their implied fair value.
Gross premiums written Gross premiums written were $1.34 billion, up 5.3% year-over-year from $1.28 billion, reflecting a strategic and substantial increase in Florida commercial residential lines business and a higher average premium per policy throughout the book of business, partly offset by intentional targeted exposure management resulting in premium reductions of personal lines business in most states.
Gross premiums written Gross premiums written were $1.4 billion, up 6.7% year-over-year from $1.3 billion, reflecting a strategic and substantial increase in Florida commercial residential lines business and a higher average premium per policy throughout the book of business, partly offset by intentional targeted exposure management resulting in premium reductions of personal lines business in most states.
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.
Gross premiums earned Gross premiums earned were $1.4 billion for the year ended December 31, 2024, up 6.2% compared to $1.3 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.
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”).
Convertible Notes On August 10, 2017, the Company and Heritage MGA, LLC (the “Notes Guarantor”) entered into a purchase agreement (the “Purchase Agreement”) with the initial purchaser party thereto (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”).
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.
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, 2024 was $61.5 million or $2.01 per diluted share, compared to a net income of $45.3 million or $1.73 diluted loss per share in the prior year.
The weighted average credit quality of the Company’s fixed maturity portfolio, both including and excluding U.S. Treasury securities, was “A+” at both December 31, 2023 and 2022. Below investment grade securities represented 0.1% of the total fixed maturity investment portfolio at both December 31, 2023 and 2022.
The weighted average credit quality of the Company’s fixed maturity portfolio, both including and excluding U.S. Treasury securities, was "A" at December 31, 2024 and “A+” at December 31, 2023. Below investment grade securities represented 0.01% of the total fixed maturity investment portfolio at both December 31, 2024 and 2023.
The carrying value of the Company’s fixed maturity portfolio at December 31, 2023 was $560.7 million. The Company closely monitors the duration of its fixed maturity investments, and investment purchases and sales are executed with the objective of having adequate funds available to satisfy the Company’s insurance and debt obligations.
The carrying value of the Company’s fixed maturity portfolio at December 31, 2024 was $663.4 million. The Company closely monitors the duration of its fixed maturity investments, and investment purchases and sales are executed with the objective of having adequate funds available to satisfy the Company’s insurance and debt obligations.
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.
Supplemental Information The Supplemental Information table below demonstrates progress on our initiatives by providing policy count, premiums-in-force, and total insured value for Florida and all other states as of December 31, 2024 and comparing those metrics to December 31, 2023. One of our strategies had been to reduce personal lines exposure in Florida, given historical abusive claims practices.
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.
Financing Activities Net cash used in financing activities for the year ended December 31, 2024 was $5.2 million, compared to net cash provided by of $14.5 million in the prior year.
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.
Premiums-in-force were $1.4 billion as of December 31, 2024, representing a 5.7% increase from the prior year due to continued proactive underwriting action and rate increases across the entire portfolio and strategic growth in our 36 commercial residential product, despite a policy count reduction of over 60,000, driven by an intentional reduction in our personal lines policy count.
FHLB Loan Agreements In December 2018, a subsidiary of the Company received a 3.094% fixed interest rate cash loan of $19.2 million from the Federal Home Loan Bank (“FHLB”) Atlanta.
FHLB Loan Agreements In December 2018, an insurance company subsidiary of the Company received a 3.094% fixed interest rate cash loan of $19.2 million from the Federal Home Loan Bank (“FHLB-AT”) Atlanta.
Reinsurance Commutation As further described in Note 17, Commitments and Contingencies, to the condensed consolidated financial statements for the second quarter of 2023, our 2017 reinsurance agreement with the FHCF required a commutation no later than 60 months after the end of the contract year.
Reinsurance Commutation As further described in Note 17, Commitments and Contingencies, and Note 13, Reserve for Unpaid Losses, to the condensed consolidated financial statements, our 2017 reinsurance agreement with the FHCF required a commutation no later than 60 months after the end of the contract year.
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.
Balances in premiums receivable and the associated allowance account are removed upon cancellation of the policy due to non-payment and returned agent commission. For December 31, 2024, 2023 and 2022, we recorded bad debt expense of approximately $51,500, $855,750 and $0, respectively.
The Florida TIV remained relatively flat based on the reduction in personal lines policies offset by the strategic growth of our commercial residential portfolio, as well as use of inflation guard across the book of business.
The Florida TIV remained relatively flat as the reduction associated with personal lines policies was offset by the strategic growth of our commercial residential portfolio, as well as use of inflation guard across the book of business.
We record an asset, prepaid reinsurance premiums, and a liability, reinsurance payable, for the entire contract amount upon commencement of our new reinsurance agreements. We amortize our prepaid reinsurance premiums over the 12-month contract period.
We record an asset, prepaid reinsurance premiums, and a liability, reinsurance payable, for the entire contract amount upon commencement of our new reinsurance agreements.
In the case of certain events of bankruptcy, insolvency or reorganization (as set forth in the Convertible Note Indenture) with respect to the Company, 100% of the principal of, and accrued and unpaid interest, if any, on, the Convertible Notes automatically become immediately due and payable. In January 2022, the Company repurchased $11.7 million principal amount of outstanding Convertible Notes.
In the case of certain events of bankruptcy, insolvency or reorganization (as set forth in the Convertible Note Indenture) with respect to the Company, 100% of the principal of, and accrued and unpaid interest, if any, on, the Convertible Notes automatically become immediately due and payable.
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.
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 22.3% at December 31, 2024 as compared to the prior year.
The effective tax rate for 2023 benefitted from a $6.4 million reduction in the valuation allowance against our Osprey net deferred tax assets that had been established in the prior year as operating income at Osprey for the year ended December 31, 2023 resulted in full use of Osprey operating losses.
The effective tax rate for 2023 was lower than the statutory rate driven by a $6.4 million reduction in the valuation allowance against our Osprey net deferred tax assets 38 that had been established in the prior year, as operating income at Osprey for the year ended December 31, 2023 resulted in full use of Osprey operating losses.
On September 29, 2023, the Company restructured the December 2018 agreement to extend the maturity date to March 28, 2025, with a 5.109% fixed interest rate payable quarterly commencing on December 28, 2023. The subsidiary continues to be a member in the FHLB.
On September 29, 2023, the Company restructured the December 2018 agreement to extend the maturity date to March 28, 2025, with a 5.109% fixed interest rate payable quarterly commencing on December 28, 2023. In connection with the initial loan agreement, the subsidiary became a member of the FHLB-AT.
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.
Investing Activities Net cash used in investing activities for the year ended December 31, 2024 was $91.6 million compared to net cash provided by of $100.8 million in the prior year.
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.
Our external reserving actuaries evaluated the adequacy of our reserves as of December 31, 2024 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 46 principles, and make a reasonable provision for all unpaid loss and loss adjustment expense obligations under the terms of our contracts and agreements.
We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimates in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our consolidated financial statements.
While we base estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates. 45 We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimates in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our consolidated financial statements.
We recognize the cost of our reinsurance program ratably over term of the arrangement, which is typically twelve months. Our catastrophe excess of loss reinsurance generally incepts June 1 and runs through May 31 of the following year. Our net quota share treaty incepts December 31. Our other reinsurance programs may be purchased on a calendar or fiscal year basis.
We recognize the cost of our reinsurance program ratably over term of the arrangement, which is typically twelve months. Our catastrophe excess of loss reinsurance generally commences on June 1 and runs through May 31 of the following year. Our net quota share treaty commences on December 31.
Compared to the year ended December 31, 2022, the policy count for markets outside of Florida decreased 14.4% due to underwriting actions and intentional exposure management, resulting in a TIV decrease of 6.3% while premiums-in-force decreased only 3.4% due to rating actions.
Compared to the year ended December 31, 2023, the policy count for markets outside of Florida decreased 14.0% due to underwriting actions and intentional exposure management, resulting in a TIV decrease of 7.6% while premiums-in-force increased by 9.8% due to rating actions.
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.
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.
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.
As of December 31, 2024, the borrowings under the Term Loan Facility and Revolving Credit Facility accruing interest at a rate of 7.449% and 7.423% per annum, respectively.
The increase in Florida premiums-in-force was driven by organic growth of our commercial residential business which generates higher average premium, rate increases across the book of business and use of inflation guard, partly offset by a premium reduction associated with fewer Florida personal lines policies.
The increase in Florida premiums-in-force was driven by organic growth of our commercial residential and surplus lines business as well as higher rates across our footprint which 31 was partly offset by a premium reduction associated with fewer Florida personal lines policies. Use of inflation guard also bolstered premiums-in-force.
In the event that we incur losses recoverable under our reinsurance program, we record amounts recoverable from our reinsurers on paid losses plus an estimate of amounts recoverable on unpaid losses.
We amortize our prepaid reinsurance premiums over the 12-month contract period. 47 In the event that we incur losses recoverable under our reinsurance program, we record amounts recoverable from our reinsurers on paid losses plus an estimate of amounts recoverable on unpaid losses.
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.
As of December 31, 2024, we held $452.7 million in cash and cash equivalents and $663.4 million in investments, compared to $463.6 million in cash and $569.4 million in investments as of December 31, 2023.
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.
Ceded premiums Ceded premiums were $638.2 million for the year ended December 31, 2024, up 1.9% compared to $626.5 million in the prior year.
The offering of the Convertible Notes was completed on August 16, 2017. The Company issued the Convertible Notes under an Indenture (the “Convertible Note Indenture”), dated August 16, 2017, by and among the Company, as issuer, the Notes Guarantor, as guarantor, and Wilmington Trust, National Association, as trustee (the “Trustee”).
The Company issued the Convertible Notes under an Indenture (the “Convertible Note Indenture”), dated August 16, 2017, by and among the Company, as issuer, the Notes Guarantor, as guarantor, and Wilmington Trust, National Association, as trustee (the “Trustee”). The Convertible Notes bear interest at a rate of 5.875% per year.
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.
At December 31, 2024 and 2023, the outstanding balance under the Revolving Credit facility was $10.0 million.
As of December 31, 2023, there was $79.6 million in aggregate principal outstanding under the Term Loan Facility. Revolving Credit Facility.
The Term Loan Facility matures on July 28, 2026. As of December 31, 2024 and December 31, 2023, there was $70.1 million and $79.6 million, respectively, in aggregate principal outstanding under the Term Loan Facility. Revolving Credit Facility.
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.
In addition to $191.1 million of recorded case reserves, we recorded $851.6 million of IBNR reserves as of December 31, 2024 to achieve overall gross reserves of $1.04 billion. At December 31, 2024, ceded IBNR and net IBNR were $571.2 million and $280.4 million, respectively.
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.
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.
At our option, borrowings under the Credit Facilities bear interest at rates equal to either (1) a rate determined by reference to SOFR, plus an applicable margin (described below) and a credit adjustment spread equal to 0.10% or (2) a base rate determined by reference to the highest of (a) the “prime rate” of Regions Bank, (b) the federal funds rate plus 0.50%, and (c) the adjusted term SOFR in effect on such day for an interest period of one month plus 1.00%, plus an applicable margin (described below).
During 2024, the Company secured letters of credit in aggregate of $24.4 million with a maturity date of March 16, 2025, which provided additional collateral for reinsurance contracts associated with Osprey Re and remained outstanding at December 31, 2024. 41 At our option, borrowings under the Credit Facilities bear interest at rates equal to either (1) a rate determined by reference to SOFR, plus an applicable margin (described below) and a credit adjustment spread equal to 0.10% or (2) a base rate determined by reference to the highest of (a) the “prime rate” of Regions Bank, (b) the federal funds rate plus 0.50%, and (c) the adjusted term SOFR in effect on such day for an interest period of one month plus 1.00%, plus an applicable margin (described below).
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.
We are managing exposure by writing new business only in geographies for which rates are adequate, non-renewing unprofitable business in compliance with regulatory requirements, and maintaining our strict underwriting requirements. We have improved the geographic distribution of our business, which is becoming more rate adequate.
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.
Year Ended December 31, 2024 2023 Ceded premium ratio 45.4 % 47.3 % Net loss and LAE ratio 58.2 % 61.1 % Net expense ratio 36.0 % 35.2 % Net combined ratio 94.2 % 96.3 % Net combined ratio The net combined ratio was 94.2% for the year ended December 31, 2024, a 2.1 point improvement from 96.3% in the prior year.
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 .
For the years ended December 31, 2024, 2023 and 2022, we earned ceding commission income of $50.3 million, $64.8 million and $61.9 million of which $37.8 million, $48.7 million and $46.5 million was allocable to policy acquisition costs. Deferred taxes .
We determine our ultimate loss reserves by selecting an estimate within a relevant range of indications that we calculate using generally accepted actuarial techniques.
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.
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 improvement stems primarily from a significantly lower net loss and LAE ratio, as described below. Ceded premium ratio The ceded premium ratio was 45.4% for the year ended December 31, 2024, a 1.9 point improvement from 47.3% to the prior year, reflecting the growth in gross premiums earned outpacing the growth in ceded premiums earned as described above.
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.
Interest expense, net Interest expense was $10.9 million for the year ended December 31, 2024, a reduction from the prior year by 2.5% as a result of a decrease in interest rates on our variable rate debt.
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.
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 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.
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.
Provision for income taxes The provision for income taxes was $21.1 million for the year ended December 31, 2024 compared to $6.7 million for the year ended December 31, 2023. The effective tax rate for the year ended December 31, 2024 was 25.6%, which is slightly lower than the statutory rate, compared to 12.9% in the prior year.
Net premiums earned reflect gross premiums earned less ceded premiums during the period. Net investment income represents interest earned on fixed maturity securities, short term securities and other investments, dividends on equity securities. Net realized and unrealized gains or losses represent gains or losses on investment sales and unrealized gains or losses on equity securities.
Our other reinsurance programs may be purchased on a calendar or fiscal year basis. Net premiums earned reflect gross premiums earned less ceded premiums during the period. Net investment income represents interest earned on fixed maturity securities, short term securities and other investments, dividends on equity securities.
The Convertible Notes bear interest at a rate of 5.875% per year. Interest is payable semi-annually in arrears, on February 1 and August 1 of each year.
Interest is payable semi-annually in arrears, on February 1 and August 1 of each year.
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.
Membership in the FHLB-AT required an investment in FHLB-AT’s common stock which was purchased in December 2018 and valued at $1.4 million. Additionally, the transaction required certain other investments to be pledged as collateral.
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.
Critical Accounting Policies and Estimates The following discussion and analysis presents the more significant factors that affected our financial conditions as of December 31, 2024 and 2023 and results of operations for each of the years then ended.
The preparation of financial statements in conformity with accounting principles of generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While we base estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.
The preparation of financial statements in conformity with accounting principles of generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
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.
The increase primarily stems from higher gross premiums earned outpacing higher ceded premiums as described above. Net investment income Net investment income, inclusive of realized investment gains (losses) and unrealized gains (losses) on equity securities, was $35.9 million for the year ended December 31, 2024, up 45.0% compared to $24.8 million in the prior year.
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.
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.
Credit Facilities The Company is party to a Credit Agreement by and among the Company, as borrower, certain subsidiaries of the Company from time to time party thereto as guarantors, the lenders from time to time party thereto (the “Lenders”), Regions Bank, as Administrative Agent and Collateral Agent, BMO Harris Bank N.A., as Syndication Agent, Hancock Whitney Bank and Canadian Imperial Bank of Commerce, as Co-Documentation Agents, and Regions Capital Markets and BMO Capital Markets Corp., as Joint Lead Arrangers and Joint Bookrunners (as amended from time to time, the “Credit Agreement”).
Credit Facilities The Company is party to a Credit Agreement by and among the Company, as borrower, certain subsidiaries of the Company from time to time party thereto as guarantors, the lenders from time to time party thereto (the “Lenders”),and the administrative and collateral agents and other parties thereto (as amended from time to time, the “Credit Agreement”).
Other weather losses were $60.9 million, relatively flat from $60.8 million in the prior year. Attritional losses were lower, primarily associated with the reduction in personal lines policy count and related underwriting criteria enhancements, which improved the book of business.
Attritional losses were lower, primarily associated with the reduction in personal lines policy count and related underwriting criteria enhancements, which improved the book of business. 37 For the year 2024, we experienced $25.4 million of adverse prior year development compared to $1.6 million of favorable development for the year 2023.
Other revenue includes rental income due under non-cancelable leases for space at the Company’s commercial property in Clearwater, Florida, and all policy and pay-plan fees. Our regulators have approved a policy fee on each policy written for certain states; to the extent these fees are not subject to refund, the Company recognizes the income immediately when collected.
Our regulators have approved a policy fee on each policy written for certain states; to the extent these fees are not subject to refund, the Company recognizes the income immediately when collected. The Company also charges pay-plan fees to policyholders that pay premiums in more than one installment and record the fees as income when collected.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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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.
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, 2024 consisted of membership shares held of FHLB common stock which are carried at cost.
Our fixed income securities portfolio is comprised primarily of investment grade (investments receiving Standard & Poor's Global Ratings (“S&P”) or an equivalent rating of BBB- or above) corporate securities, U.S. government and agency securities, municipal obligations, collateralized loan obligations (“CLO”) and other asset-backed securities (“ABS”), and mortgage-backed securities (“MBS”).
Our fixed income securities portfolio is comprised primarily of investment grade (investments receiving Standard & Poor's Global Ratings (“S&P”) or an equivalent rating of BBB- or above) corporate securities, U.S. government and agency securities, municipal obligations, and other asset-backed securities (“ABS”), and mortgage-backed securities (“MBS”).
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.
The duration of the financial instruments held in our portfolio that are subject to interest rate risk was 3.07 years at December 31, 2024 and 3.08 years at December 31, 2023. 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.
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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Our investment portfolios at December 31, 2024, include interest rate-sensitive securities, mainly fixed income securities.
Our main objective is to maximize after-tax investment income and maintain sufficient liquidity to meet policyholder obligations while minimizing market risk, which is the potential economic loss from adverse fluctuations in securities’ prices.
Our main objective is to maximize after-tax investment income and maintain sufficient liquidity to meet policyholder obligations while minimizing market risk, which is the potential economic loss from adverse fluctuations in the price of the securities that we hold for investment.
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 estimated fair value of the FHLB common stock was based on the amount we would receive if our memberships were canceled, as the membership cannot be sold. 49 The following table illustrates the composition of our equity portfolio at December 31, 2024 (in thousands): Estimated Fair Value % of Total Estimated Fair value Stocks by sector: Financial $ — 0 % Energy — 0 % Other 1,936 100 % Subtotal $ 1,936 100 % Mutual Funds and ETF by type: Equity $ — 0 % Subtotal $ — 0 % Total $ 1,936 100 % Foreign Currency Exchange Risk At December 31, 2024, we did not have any material exposure to foreign currency related risk. 50
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.
As of December 31, 2024, the estimated weighted-average credit quality rating of the fixed maturity securities portfolio was A, at fair value, at December 31, 2023 our average credit quality rating was an A+. 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, 2024 (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 $ 595,448 $ (60,108) (9) % 200 basis point increase $ 615,475 $ (40,081) (6) % 100 basis point increase $ 635,510 $ (20,045) (3) % 100 basis point decrease $ 675,609 $ 20,054 3 % 200 basis point decrease $ 695,673 $ 40,117 6 % 300 basis point decrease $ 715,721 $ 60,166 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.
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.
The following table presents the composition of our fixed-maturity portfolio by rating at December 31, 2024 (in thousands, except percentages): Comparable Rating Amortized Cost % of Total Amortized Cost Fair Value % of Total Fair Value AAA $ 51,468 7 % $ 47,357 7 % AA+, AA, AA- $ 379,303 55 % $ 354,390 55 % A+, A, A- $ 152,321 22 % $ 147,059 22 % BBB+, BBB, BBB-, BB $ 109,599 16 % $ 106,655 16 % Not rated $ 99 — % $ 94 — % Total $ 692,790 100 % $ 655,555 100 % Below investment grade securities have different characteristics than investment grade corporate fixed-maturity securities.
Removed
The estimated fair value of the FHLB common stock was based on the amount we would receive if our memberships were canceled, as the membership cannot be sold.

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