Heritage Insurance: A Potential Lifeguard Circle in Florida’s Turbulent Market (NYSE: HRTG)

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Heritage Insurance Holdings, Inc. (NYSE: HRTG) works in a turbulent market landscape. But revenue growth and its liquidity position allow it to remain afloat amid the storms. Meanwhile, the stock price remains in a downward trend in line with market disruption. It’s not very cheap, but it can still increase to $ 4.5-5 per share according to the P / TBV ratio. In addition, dividend yields are higher than the market average.

Execution of the company

The state of Florida is becoming a difficult environment for P / C insurance companies. Many problems are hampering the industry, causing more instability and disruption. No wonder it’s on the verge of P / C insurance. Since 2017, it has strengthened with six companies leaving the country. Now three others are being liquidated, while at least one company cannot afford reinsurance.

Heritage Insurance Holdings, Inc. is one of the popular P / C companies that remain in the state. But no matter how big and resilient, it continues to withstand the blows of the harsh market. Roof fraud and excessive lawsuits are some of the challenges that need to be addressed. However, he continues to prove the viability of his core business. For example, her income from $ 158 million is an increase of 8% on an annual basis from the first quarter of 2021. Its policies are currently in force 559,496 are 5.7% lower than 591,924 in the same quarter of 2021. Thanks to strategic pricing and a relatively solid customer base and popularity. This can help him stabilize his operations amid declining policies. Keep in mind that there is a huge influx of policyholders applying for P / C claims. In addition, interest rate adjustments allow it to ease inflationary pressures.

But HRTG needs to generate more revenue to offset the huge wave of claims. The actual claims exceeded the expected number. The amount of 140 million dollars is 42% higher than the previous year. The increase is also four times larger than the increase in premium income. Fortunately, its TOA costs and acquisition of policies remain stable. But the net amount of income and receivables is not enough to cover them. Another problem is the reduction of independent insurance agents. As we can see, its operational capacity remains limited. For its part, the operating margin continues to fall deeper at -0.249 against -0.039.

Claims for operating income and losses

Claims for operating income and losses (MarketWatch)

Operating margin

Operating margin (MarketWatch)

Compared to his colleagues in Florida, Universal Insurance (UVE) shows the best basic operations. However, HRTG is still doing better than FedNat (FNHC) and United Insurance (UIHC). Both the FNHC and the UIHC have seen significant revenue reductions and shrinking margins. In addition, their current policies are about 30% lower than in the comparable quarter. It may be due to the cancellation of policies under the restructuring plan. Inflation and higher reinsurance costs are other factors that affect their performance.

Revenue growth

Revenue growth (MarketWatch)

Policies in force

Policies in force (Report for 1 quarter)

Operating margin

Operating margin (MarketWatch)

Lawmakers are now moving to combat abuses of performers and fraudsters. In 2021, a Senate bill was approved that provides an additional layer of protection. Today, the state forbids contractors from approaching customers for roofing claims. But this could be another challenge for insurers. An ordinance prohibits them from denying claims if the roof is less than 15 years old. The useful life of the roof is generally 20 years. The threat of roof fraud has not been completely eradicated. You have to be more careful with that in mind 79% of insurance claims for P / C are facing lawsuits due to fraud. However, it can still be useful, given that it will provide assistance to companies in difficulty. More areas have already been identified, such as the number of years for roof claims. In addition, abuses and fraud by performers can be reduced.

How Heritage Insurance Holdings, Inc. can go through a turbulent market

Florida is literally and figuratively turbulent. It is more exposed to hurricanes and floods than many other states. It also faces the threat of a P / C insurance failure for many reasons. Higher prices, excessive and fraudulent claims and insurance evictions need to be addressed. What’s worse is that excessive storm expectations have been set by the NOAA. So there may be more chances of property damage, leading to more P / C claims. P / C insurance companies need to work hard to stay stable in a challenging market. Although higher demand may raise insurance rates, policies are declining. In addition, the demands seem to be higher than expected. With that, Heritage needs to be ready for more challenges this year.

Fortunately, HRTG has a good liquidity position, which allows it to cover liabilities. For example, its cash and cash equivalents remain high at $ 980 million. It is enough to make a one-time payment for insurance obligations and loans. Loans are also stable, which shows his ability to manage his financial leverage well. Timely payments on outstanding loans are more important, given the increase in interest rates. So even if his net income remains negative, he still has enough to keep going.

Cash and cash equivalents and insurance liabilities

Cash and cash equivalents and insurance liabilities and loans (MarketWatch)

The noise of the housing market can also help it capture more demand. In the near future research26 million Americans plan to buy a house this year. This is much higher than the average number of units sold of 5-6 million per year. Despite macroeconomic pressure, 34% are confident in their ability to buy. Not surprisingly, given the challenges in the P / C insurance market, its noise remains apparent. Statistics estimate a 3.7% and 6% CAGR in the global and American P / C insurance market. In turn, this can increase the demand for P / C insurance. Being at the forefront of climate change, it remains a staple for many homeowners. But HRTG needs to be more cautious, given all the possible challenges discussed earlier. Taking a step back and evaluating his operations in Florida can help him make a reasonable judgment. Enlargement to other countries is a sensible option, but it may take time to strengthen its market presence. It is good that he continues to work on his geographical diversification. Therefore, HRTG may become more stable, although growth may remain elusive.

Expanding the P / C insurance market

Expanding the P / C insurance market (Insurance newspaper)

Estimation of the share price

The share price of Heritage Insurance Holdings, Inc. remains on a downward trend, even after a sharp decline in April. IN $ 3.11, it has already been reduced by 46% of the starting price. It is 57% lower than its peak in March. Using a P / B ratio of 0.32, the price seems to be a very good deal. It can increase from $ 5.7-6.7. It is much lower than UVE and FNHC. The P / B ratio is an ideal indicator for insurance companies, as it helps to assess their value once they are completely liquidated. It is also timely, given that a number of P / C companies in Florida have been liquidated. We also want to determine the value of HRTG before making a position.

It may be more accurate if we use the P / TBV ratio. The percentage doubles to almost 0.70. From there we can see that the company has a very good will, given the nature of its operations. The amount is reasonable in terms of assets and lower than the value in the previous year. But impairment of goodwill may indicate that its acquired assets generate less cash flow. As such, he needs to be more aware of his potential impact. It must beware of market uncertainty, despite its good liquidity and resilience. Apart from market disruptions, I believe that the same ratio reached its limit last March. This may be another logical factor for the sharp decline. Today, the share price is slightly underestimated. Using the ratio, the price can rise to $ 4.5-5 per share.

P / B and P / TBV ratio

P / B and P / TBV ratio (Yahoo Finance)

Dividends, meanwhile, have been steady, although there has been no increase in recent years. The dividend yield of 7.08% is better than its counterparts in Florida. This means that it produces more return on dividends, which makes it relatively cheaper. But the dividend payout ratio using net income and FCF remains negative. If the cash flow continues to turn negative, the capacity to maintain it may be affected.

Dividend yield

Dividend yield (Yahoo Finance)

Yahoo Finance

Yahoo Finance (Dividend payout ratio)


Heritage Insurance Holdings, Inc. remains resilient in the face of market uncertainty. In addition, the reduction in its current policies remains manageable compared to some of its counterparts. We hope that efforts to reduce fraud will be made. This is more important, as allegations may be reinforced by over-forecasting hurricanes. This can help stabilize the frequency of claims and help the market recover. Meanwhile, the stock price has a potential underestimation, but it is still not very cheap. The recommendation is Heritage Insurance Holdings, Inc. to be detained.

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