Heritage Insurance Holdings Inc

Previous wording

We continue to monitor the effects of general changes in economic and market conditions on our business. As a result of general inflationary pressures, we have experienced, and may continue to experience, increased cost of materials and labor needed for repairs and to otherwise remediate claims throughout all states in which we conduct business. We mitigate the impact of inflation by implementation of rate increases 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, causing both to rise. Rising reinsurance costs may be mitigated through exposure management as well as recouping the cost of reinsurance in future rate filings.

Current wording

We continue to monitor the effects of general changes in economic and market conditions on our business. As a result of general inflationary pressures or after catastrophic weather events generating significant property losses, we have experienced, and may continue to experience, increased cost of materials and labor needed for repairs and to otherwise remediate claims throughout the states in which we conduct business. We mitigate the impact of inflation by implementation of rate increases 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, causing both to rise. Rising reinsurance costs may be mitigated through exposure management as well as recouping the cost of reinsurance in future rate filings.

Previous wording

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 June 30, 2024 and comparing those metrics to June 30, 2023. One of our strategies has been to reduce personal lines exposure in Florida, given historical abusive claims practices which drove up loss costs. As a consequence, our policy count for Florida personal lines policies has intentionally declined over the last several years. The actions of the Florida legislature aimed at curtailing assignment of benefits and litigated claims abuse is having a positive impact on loss cost trends. Coupled with more adequate rates, we expect to pursue a strategy of controlled growth as described below.

Current wording

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 September 30, 2024 and comparing those metrics to September 30, 2023. One of our strategies had been to reduce personal lines exposure in Florida, given historical abusive claims practices which drove up loss costs. Consequently, our policy count for Florida personal lines policies has intentionally declined over the last several years. The actions of the Florida legislature aimed at curtailing assignment of benefits and litigated claims abuse is having a positive impact on loss cost trends. As such, we anticipate writing more organic business in Florida. Coupled with more adequate rates, we expect to pursue a strategy of controlled growth as described below.

Previous wording

Florida policies-in-force declined from the prior year quarter by 14.0% while premiums-in-force increased 10.5%, and TIV was down by 1.3%. The increase in Florida premiums-in-force was driven by organic growth of our commercial residential business which generates higher average premium, rate increases and use of inflation guard, partly offset by a premium reduction associated with fewer Florida personal lines policies. The Florida TIV declined modestly as the reduction in 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. Compared to the quarter ended June 30, 2023, the policy count for markets outside of Florida decreased 14.2% due to underwriting actions and intentional targeted exposure management, resulting in a TIV decrease of 6.5% while premiums-in-force increased by 1.7% due to rating actions.

Current wording

Florida policies-in-force declined from the prior year quarter by 14.5% while premiums-in-force increased by 6.0%, and TIV was down by 1.3% when compared to the prior year quarter. The increase in Florida premiums-in-force was driven by organic growth of our commercial residential business which generates a higher average premium and rate increases and use of inflation guard throughout the book of business, partly offset by a premium reduction associated with fewer Florida personal lines policies. The Florida TIV declined with the reduction in personal lines policies partly offset by the strategic growth of our commercial residential portfolio, as well as use of inflation guard across the book of business. Compared to the quarter ended September 30, 2023, the policy count for markets outside of Florida decreased 14.1% due to underwriting actions and intentional targeted exposure management, resulting in a TIV decrease of 7.1% while premiums-in-force increased by 5.9% due to rating actions.

Previous wording

•Gross premiums earned increased 6.1% over the prior year quarter, driven by rate actions as well as organic growth in commercial residential business, while net income grew by 143%.

Current wording

•Gross premiums earned increased 5.1% over the prior year quarter, driven primarily by rate actions as well as modest organic growth in commercial residential business, while net income grew by 209.8%.

Previous wording

•Premiums-in-force of $1.4 billion are up 6.1% from the prior year quarter, driven primarily by growth in commercial residential business and rate increases throughout the book of business.

Current wording

•Premiums-in-force of $1.4 billion are up 6.0% from the prior year quarter, driven primarily by rate increases throughout the book of business and modest growth of the commercial residential business.

Previous wording

•We selectively increased the commercial residential premium in force by 29.4% compared to the second quarter of 2023, while the total insured value (“TIV”) only increased by 9.9%. The commercial residential business, which tends to have a significantly lower attritional loss ratio, generates materially higher premiums. Commercial residential business accounts for 21.3% of the in-force premium, compared to 17.5% in the prior year period.

Current wording

•We selectively increased the commercial residential premium in force by 23.6% compared to the third quarter of 2023, while the total insured value (“TIV”) only increased by 9.5%. The commercial residential business, which tends to have a significantly lower attritional loss ratio, generates materially higher premiums.

Previous wording

•As part of our targeted exposure management strategy, we continue to grow our policy count in products and geographies which are profitable and reduce our policy count in unprofitable and over concentrated areas.

Current wording

•As part of our targeted exposure management strategy, we continue to grow our policy count in products and geographies which are profitable and reduce our policy count in unprofitable and over concentrated areas. As a result of the positive impacts of Florida insurance reform aimed at curtailing claims abuse, we expect to increase the amount of new admitted business written in Florida.

Previous wording

•Premiums-in-force grew nearly $30.0 million or 177.0% year over year for our Excess & Surplus (“E&S”) business where we can more nimbly adjust rates and coverage. This business was written in California, Florida, and South Carolina. We will continue to evaluate other states for E&S and other products as we focus on our controlled growth strategy.

Current wording

•In-Force premium grew $24.8 million or 116.4% year over year for our Excess & Surplus (“E&S”) business, where we can more nimbly adjust rates, coverage, and business volume. Our E&S business is written in California, Florida, and South Carolina. We will continue to evaluate other states and products for E&S and as we proceed with our controlled growth strategy.

Previous wording

•This disciplined underwriting approach resulted in a policy count reduction of just over 69,000 or 14.1% throughout our footprint from second quarter 2023, while premium in force increased by $81.2 million or 6.1%. We expect the headwind from declining policies to moderate.

Current wording

•Our disciplined underwriting approach resulted in a policy count reduction of just over 66,000 or 14.2% throughout our footprint from third quarter 2023, while premium in force increased by $80.6 million or 6.0%.

Previous wording

•Given improved rate adequacy across our regions, we expect to begin underwriting new policies in Florida and the Northeast as we pursue a controlled growth strategy designed to accelerate revenue growth.

Current wording

•Given improved rate adequacy across our footprint, we began organically writing more new admitted policies in Florida and the Northeast compared to the second quarter of 2024 as well as the prior year period as we pursue a controlled growth strategy designed to accelerate revenue growth.

Previous wording

•No state represents over 27.3% of the Company’s TIV.

Current wording

•No state represents over 27.6% of the Company’s TIV.

Previous wording

We continue to address rising reinsurance and loss costs in the property insurance sector throughout much of the United States by ensuring rate adequacy, maintaining strong underwriting criteria, and continuous monitoring of exposure on a granular level. Our rates reflect the use of inflation guard factors to ensure that rising costs to repair properties are reflected in our rates. These factors resulted in an increase in the average premium per policy of 23.5% for the quarter ended June 30, 2024 as compared to the prior year quarter. The higher average premium is driven by rate changes, inclusion of inflation in premiums as described above, and by the mix of business written. We experienced intentional growth of our commercial residential business during 2023 and during the first two quarters of 2024. This line of business generates a significantly higher average premium per policy. New rates, which are subject to approval by our regulators, become effective when a policy is written or renewed, and the premium is earned pro rata over the policy period of one year. 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.

Current wording

We continue to address rising reinsurance and loss costs in the property insurance sector throughout much of the United States by taking rate actions, maintaining strong underwriting criteria, and continuous monitoring of exposure on a granular level. Our rates reflect the use of inflation guard factors to ensure that rising costs to repair properties are reflected in our rates. These factors resulted in an increase in the average premium per policy of 23.6% for the quarter ended September 30, 2024 as compared to the prior year quarter. The higher average premium is driven by rate changes, inclusion of inflation in premiums as described above, and by the mix of business written. We experienced intentional growth of our commercial residential business during 2023 and during the first two quarters of 2024, with the policy count growing slightly during the third quarter and expected to level out going forward. This line of business generates a significantly higher average premium per policy because the average exposure per policy is higher. New rates, which are subject to approval by our regulators, become effective when a policy is written or renewed, and the premium is earned pro rata over the policy period of one year. 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.

Previous wording

We invest in data analytics, using software and experienced personnel, to continuously evaluate our underwriting criteria and manage exposure to catastrophe and other losses. Our retention has remained steady in the range of 90% despite the rate increases we have implemented, in large part due to a challenging property insurance market in many of the regions in which we operate. While we believe our rates are generally competitive with private market insurers operating in our space, we are focused on meticulous underwriting, managing exposure and achieving rate adequacy throughout our book of business.

Current wording

We invest in data analytics, using software and experienced personnel, to continuously evaluate our underwriting criteria and manage exposure to catastrophe and other losses. Our retention has remained steady in the range of 90% despite the rate increases we have implemented, in large part due to a hard property insurance market in many of the regions in which we operate. While we believe our rates are generally competitive with private market insurers operating in our space, we are focused on meticulous underwriting, managing exposure and achieving rate adequacy throughout our book of business.

Previous wording

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 and the cost of reinsurance continues to rise. Our Florida personal lines market had experienced claim costs driven up by litigated claims, which substantially increased loss costs and drove up rates for the insurance buying public. In addition, catastrophe excess of loss reinsurance markets tightened with higher pricing and less supply. Our response to this phenomenon was to raise rates and reduce exposure for personal lines business in Florida and other states in the southeast as well as the northeast. Recent legislative changes have been made in Florida in each of the last three years, which we believe is making progress toward reducing losses from abusive claim reporting practices and stabilizing the Florida property insurance market. The legislation appears to be having the intended impact. Given improved rate adequacy throughout our book of business and more stabilized reinsurance pricing and availability, we expect to pursue a strategy of controlled growth anchored by continued risk management and stringent underwriting. In force premium for our E&S business, where we can more nimbly adjust rates and coverage to meet market conditions, continues to grow.

Current wording

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 and the cost of reinsurance continues to rise. Our Florida personal lines market had experienced claim costs driven up by litigated claims, which substantially increased loss costs and drove up rates for the insurance buying public. In addition, during 2022 and 2023, catastrophe excess of loss reinsurance markets tightened with higher pricing and less supply. Our response to this phenomenon was to raise rates and reduce exposure. We continue to experience positive results from legislative changes that have been made in Florida over the last several years, which we believe is making progress toward reducing losses from abusive claim reporting practices and stabilizing the Florida property insurance market. Given improved rate adequacy throughout our book of business and more stabilized reinsurance pricing and availability, we expect to pursue a strategy of controlled growth anchored by continued risk management and stringent underwriting. In force premium for our E&S business, where we can more nimbly adjust rates and coverage as well as adjust product offerings to meet market conditions, continues to grow.

Previous wording

•Second quarter 2024 net income was $18.9 million or $0.61 per diluted share, compared to net income of $7.8 million or $0.30 per diluted share in the prior year quarter, primarily driven by an increase in net premiums earned, higher net investment income, and a reduction in realized losses, which is partly offset by higher operating expenses. The improvement in net income is attributable to the positive impact of rate actions, underwriting actions, and targeted exposure management taken over the last several years, which favorably impacted results during the second quarter of 2024.

Current wording

•Third quarter 2024 net income was $8.2 million or $0.27 per diluted share, compared to a net loss of ($7.4) million or ($0.28) per diluted share in the prior year quarter, primarily driven by an increase in net premiums earned, higher net investment income, lower net losses and loss adjustment expenses, and lower general and administrative expenses which was partly offset by higher policy acquisition costs. As described below, higher policy acquisition costs were mostly attributable to costs that vary with gross premiums written and a reduction in ceding commission income. The improvement in net income is attributable to the positive impact of rate actions, underwriting actions, and targeted exposure management taken over the last several years, which favorably impacted results during the third quarter of 2024.

Previous wording

•Gross premiums written of $424.5 million were up 7.1% from $396.6 million in the prior year quarter, reflecting a strategic and substantial organic increase in Florida commercial residential lines business and a higher average premium per policy throughout the book of business from rating actions and use of inflation guard, which ensures appropriate property values, partly offset by targeted exposure management.

Current wording

•Gross premiums written of $313.0 million were up 1.1% from $309.5 million in the prior year quarter, reflecting a higher average premium per policy throughout the book of business from rating actions and use of inflation guard, which ensures appropriate property values, partly offset by specific intentional targeted exposure management, which is expected to level out going forward.

Previous wording

•Gross premiums earned was $350.1 million, up 6.1% from $330.0 million in the prior year quarter, reflecting higher gross premiums written over the last twelve months as described above.

Current wording

•Gross premiums earned of $354.2 million were up 5.1% from $337.0 million in the prior year quarter, reflecting higher gross premiums written over the last twelve months as described above.

Previous wording

•Net premiums earned was $190.3 million, up 7.6% from $176.8 million in the prior year quarter, reflecting higher gross premium earned outpacing the increase in ceded premiums for the current year quarter.

Current wording

•Net premiums earned of $198.8 million were up 12.6% from $176.6 million in the prior year quarter, reflecting higher gross premium earned outpacing the increase in ceded premiums for the current year quarter.

Previous wording

•Net loss and LAE ratio was 55.7%, down 4.6 points from 60.3% in the prior year quarter, driven by growth in net premiums earned coupled with a small decline in net losses and LAE incurred as described above.

Current wording

•Net loss and LAE ratio was 65.4%, down 9.0 points from 74.4% in the prior year quarter, driven by growth in net premiums earned coupled with a small decline in net losses and LAE incurred as described above.

Previous wording

The provision for income taxes was $6.0 million for the second quarter of 2024 compared to $5.9 million in the prior year quarter. The effective tax rate for second quarter 2024 was 24.1% compared to 43.0% in the prior year quarter. The effective tax rate in second quarter 2023 was impacted by an increase of $2.5 million in the deferred tax valuation allowance related to Osprey Re related to certain tax elections made by Osprey Re, the Company’s captive reinsurer domiciled in Bermuda. The impact of permanent tax differences on projected results of operations for the calendar year impacts the effective tax rate, which can also fluctuate throughout the year as estimates used in the quarterly tax provision are updated with additional information.

Current wording

•The effective tax rate of 9.4% compared to 38.3% in the prior year quarter. The effective tax rate for the current year quarter was favorably impacted by updated estimates used in the quarterly tax provision as well as the benefit of interest income on a previous year's income tax refund, which lowered income tax expense for the quarter. The effective tax rate for the prior year quarter was impacted by a decrease of $7.2 million in the deferred tax valuation allowance related to certain tax elections made by Osprey Re, the Company’s captive reinsurer domiciled in Bermuda. The decrease in the valuation allowance in the prior year quarter caused the income tax benefit for the prior year quarter to be higher than the statutory rate. There was no benefit nor detriment associated with a valuation allowance in the current year quarter. The impact of permanent tax differences on projected results of operations for the calendar year impacts the effective tax rate, which can also fluctuate throughout the year as estimates used in the quarterly tax provision are updated with additional information.

Previous wording

Total revenue was $203.6 million for the second quarter of 2024, up 9.9% from $185.3 million in the prior year quarter. The increase primarily stems from higher net premiums earned and net investment income as described below.

Current wording

Total revenue was $211.8 million for the third quarter of 2024, up 13.7% from $186.3 million in the prior year quarter. The increase primarily stems from higher net premiums earned and net investment income as described below.

Previous wording

Gross premiums written were $424.5 million for the second quarter of 2024, up 7.1% from $396.6 million in the prior year quarter, reflecting a strategic and substantial increase in Florida commercial residential lines business and a higher average premium per policy throughout the book of business from rating actions and use of inflation guard, which ensures appropriate property values, partly offset by intentional targeted exposure management resulting in strategic premium reductions of personal lines business in most of our larger states.

Current wording

Gross premiums written were $313.0 million for the third quarter of 2024, up 1.1% from $309.5 million in the prior year quarter, reflecting a higher average premium per policy throughout the book of business from rating actions and use of inflation guard, which ensures appropriate property values, partly offset by intentional targeted exposure management. Exposure management resulted in fewer personal residential policies in force in the admitted market; however, our E&S program expanded. Gross premiums written for our commercial residential business was relatively flat quarter over quarter.

Previous wording

Premiums-in-force were $1.4 billion at June 30, 2024, representing a 6.1% increase from the prior year quarter, primarily due to continued proactive underwriting actions and rate increases across the entire portfolio, despite an intentional policy count reduction of approximately 69,000 policies. Premiums-in-force were also favorably impacted by strategic growth of the Company’s commercial residential product and use of inflation guard across all products. Concurrently, TIV was down by 5.1% from the prior year quarter.

Current wording

Premiums-in-force were $1.4 billion at September 30, 2024, representing a 6.0% increase from the prior year quarter, primarily due to continued proactive underwriting actions and rate increases across the entire portfolio, despite an intentional policy count reduction of approximately 66,000 policies. Premiums-in-force were also favorably impacted by strategic growth of the Company’s commercial residential product and use of inflation guard across all products and states. Concurrently, TIV was down by 5.6% from the prior year quarter.

Previous wording

Gross premiums earned were $350.1 million for the second quarter of 2024 up 6.1% from $330.0 million in the prior year quarter, 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.

Current wording

Gross premiums earned were $354.2 million for the third quarter of 2024 up 5.1% from $337.0 million in the prior year quarter, reflecting higher gross premiums written over the last twelve months driven by a higher average premium per policy, use of inflation guard, and higher earned premium from the commercial residential business.

Previous wording

Ceded premiums were $159.8 million for the second quarter of 2024, up 4.3% from $153.2 million in the prior year quarter. The increase is attributable to an increase in the cost of our catastrophe excess of loss reinsurance program, which commences June 1 each year, partly offset by a lower cost for our net quota share reinsurance associated with cession and associated premium volume changes. Additionally, the second quarter of 2024 included a $10.0 million reinstatement premium related to Hurricane Ian which did not occur in the prior year quarter. To the extent the ultimate losses for Hurricane Ian grow, additional reinstatement premiums may be incurred depending upon the amount of additional reinsurance limit utilized.

Current wording

Ceded premiums were $155.4 million for the third quarter of 2024, down 3.1% from $160.4 million in the prior year quarter. The decrease is attributable to the lower cost of our net quota share reinsurance program associated with cession and associated premium volume changes, partly offset by an increase in the cost of our catastrophe excess of loss reinsurance program, which commences June 1 each year The first and second quarters of 2024 included $18.0 million of reinstatement premium related to Hurricane Ian. There were no reinstatement premiums associated with Hurricane Ian during the third quarter of 2024. To the extent losses for Hurricane Ian adversely develop, additional reinstatement premiums may be incurred depending upon the amount of additional reinsurance limit utilized.

Previous wording

Net premiums earned were $190.3 million for the second quarter of 2024, up 7.6% from $176.8 million in the prior year quarter. The increase primarily stems from growth in gross premiums earned outpacing the increase in ceded premiums, as described above.

Current wording

Net premiums earned were $198.8 million for the third quarter of 2024, up 12.6% from $176.6 million in the prior year quarter. The increase primarily stems from growth in gross premiums earned coupled with the decrease in ceded premiums, as described above.

Previous wording

Net investment income, inclusive of realized investment gains (losses) and unrealized losses on equity securities, was $9.8 million for the second quarter of 2024, up from $5.0 million in the prior year quarter. The increase is primarily due to higher yields on cash and invested assets associated with higher interest rates. Additionally net investment income for the prior year quarter includes a $1.6 million impairment on other investments that did not recur in the current year quarter.

Current wording

Net investment income, inclusive of realized investment gains (losses) and unrealized losses on equity securities, was $9.8 million for the third quarter of 2024, up from $6.5 million in the prior year quarter. The increase is primarily due to higher yields on cash and invested assets associated with higher interest rates.

Previous wording

Other revenue was $3.5 million for the second quarter of 2024, relatively flat compared to the prior year quarter.

Current wording

Other revenue was $3.2 million for the third quarter of 2024, relatively flat compared to the prior year quarter.

Previous wording

Losses and loss adjustment expenses ("LAE") incurred were $105.9 million for the second quarter of 2024, down 0.7% from $106.6 million in the prior year quarter. The decrease primarily stems from lower weather losses compared to the prior year quarter, mostly offset by higher attritional losses and adverse development. Net current accident year weather losses were $19.7 million, down from $33.8 million in the prior year quarter. There were no catastrophe losses in the current or prior year quarter. Additionally, we experienced $8.7 million of net unfavorable prior year development compared to $2.7 million of net favorable prior year development in the prior year quarter.

Current wording

Losses and loss adjustment expenses were $130.0 million for the third quarter of 2024, down 1.0% from $131.4 million in the prior year quarter. The reduction was driven primarily by a reduction of non-weather losses which was partly offset by higher weather losses and adverse development. Net weather losses for the current accident quarter were $63.0 million, an increase of $11.4 million from $51.6 million in the prior year quarter. Catastrophe losses in the current quarter were $48.7 million up from $40.1 million in the prior year quarter. Other weather losses totaled $14.3 million, up from the prior year quarter amount of $11.5 million. Additionally, we experienced $6.3 million of net unfavorable prior year development compared to $0.8 million of net favorable prior year development in the prior year quarter. The net unfavorable loss development stemmed primarily from losses associated with Hurricane Irma for which the losses were fully retained.

Previous wording

Policy acquisition costs were $47.2 million for the second quarter of 2024, up 13.9% from $41.5 million in the prior year quarter. The increase is primarily attributable to growth in gross premiums written and lower ceding commission earned on the net quota share reinsurance contract, the income of which offsets, or reduces, other policy acquisition costs. The reduction in ceding commission income is due to less written premium associated with the net quota share reinsurance program coupled with higher ceding commission associated with contracts in runoff in the prior year period which did not recur in the current year quarter.

Current wording

Policy acquisition costs were $48.5 million for the third quarter of 2024, up 14.3% from $42.4 million in the prior year quarter. The increase is primarily attributable to growth in gross premiums written and lower ceding commission earned on the net quota share reinsurance contract, the income of which offsets, or reduces, other policy acquisition costs. The reduction in ceding commission income is due to less written premium associated with the net quota share reinsurance program.

Previous wording

Net income for the second quarter of 2024 was $18.9 million or $0.61 per diluted share, an improvement from net income of $7.8 million or $0.30 per diluted share in the prior year quarter. The improvement in net income is attributable to the positive impact of rate actions, underwriting actions, and targeted exposure management taken over the last several years, which favorably impacted results for the second quarter of 2024. These and other actions resulted in growth of 7.6% in net premiums earned and a 48.0% increase in investment income, and a 0.7% decrease in net losses and LAE, as described above. An increase of 13.9% in policy acquisition costs as well as a 13.6% increase in general and administrative costs partly offset higher total revenue compared to the prior year quarter. The current year quarter also benefited from a lower effective tax rate, as described below.

Current wording

Net income for the third quarter of 2024 was $8.2 million or $0.27 per diluted share, an improvement from a net loss of ($7.4) million or ($0.28) per diluted share in the prior year quarter. The improvement in net income is attributable to the positive impact of rate actions, underwriting actions, and targeted exposure management taken over the last several years, which favorably impacted net premiums earned and net losses and loss adjustment expenses for the third quarter of 2024. These and other actions resulted in growth of 12.6% in net premiums earned, a 42.7% increase in investment income, and a 1.0% decrease in net losses and LAE, as described above. An increase of 14.3% in policy acquisition costs was partly offset by a 1.5% decrease in general and administrative costs. The current year quarter also benefited from a lower effective tax rate, as described below.

Previous wording

•The effective tax rate was 24.1% compared to 43.0% in the prior year quarter. The effective tax rate in second quarter 2023 was impacted by an increase of $2.5 million in the deferred tax valuation allowance related to certain tax elections made by Osprey Re, the Company’s captive reinsurer domiciled in Bermuda. There was no benefit nor detriment associated with a valuation allowance in the current year quarter. The effective tax rate can fluctuate throughout the year as estimates used in the quarterly tax provision are updated with additional information.

Current wording

The provision for income taxes was $0.8 million for the third quarter of 2024 compared to a tax benefit of $4.6 million in the prior year quarter. The effective tax rate for third quarter 2024 was 9.4% compared to 38.3% in the prior year quarter. The effective tax rate for the current year quarter was favorably impacted by updated estimates used in the quarterly tax provision as well as the benefit of interest income on a previous year's income tax refund, which lowered income tax expense for the quarter. The Company recognizes interest and penalties related to uncertain tax benefits on the income tax expense line in the accompanying condensed consolidated statements of operations. The effective tax rate in third quarter 2023 was impacted by a decrease of $7.2 million in the deferred tax valuation allowance related to Osprey Re related to certain tax elections made by Osprey Re, the Company’s captive reinsurer domiciled in Bermuda. The decrease in the valuation allowance in the prior year quarter caused the income tax benefit for the prior year quarter to be higher than the statutory rate. There was no benefit nor detriment associated with a valuation allowance in the current year quarter. The impact of permanent tax differences on projected results of operations for the calendar year impacts the effective tax rate, which can also fluctuate throughout the year as estimates used in the quarterly tax provision are updated with additional information.

Previous wording

The ceded premium ratio was 45.6% for the second quarter of 2024, down 0.8 points from 46.4% in the prior year quarter, primarily driven by higher net premiums earned which outpaced the increase in ceded premiums as described above.

Current wording

The ceded premium ratio was 43.9% for the third quarter of 2024, a 3.7 point improvement from 47.6% in the prior year quarter, primarily driven by higher gross premiums earned coupled with a decrease in ceded premiums as described above.

Previous wording

The net loss and LAE ratio was 55.7% for the second quarter of 2024, 4.6 points lower than the prior year quarter of 60.3%, primarily driven by higher net premiums earned, and lower net losses and LAE as described above.

Current wording

The net loss and LAE ratio was 65.4% for the third quarter of 2024, a 9.0 point improvement from the prior year quarter of 74.4%, primarily driven by higher net premiums earned, and lower net losses and LAE as described above.

Previous wording

Comparison of the Six Months Ended June 30, 2024 and 2023

Current wording

Comparison of the Nine Months Ended September 30, 2024 and 2023

Previous wording

Total revenue was $394.9 million for the six months ended June 30, 2024, up 9.0% compared to $362.2 million in the prior year period. The increase primarily stems from higher net premiums earned and net investment income as described below.

Current wording

Total revenue was $606.7 million for the nine months ended September 30, 2024, up 10.6% compared to $548.5 million in the prior year period. The increase primarily stems from higher net premiums earned and net investment income as described below.

Previous wording

Gross premiums written were $781.2 million for the six months ended June 30, 2024, up 10.5% from $706.9 million in the prior year period, reflecting a strategic and substantial increase in Florida commercial residential lines business and a higher average premium per policy throughout all lines of business, partly offset by intentional targeted exposure management described above.

Current wording

Gross premiums written were $1.1 billion for the nine months ended September 30, 2024, up 7.7% from $1.0 billion in the prior year period, reflecting a strategic and substantial increase in Florida commercial residential lines business and a higher average premium per policy throughout all lines of business, partly offset by intentional targeted exposure management described above.

Previous wording

Premiums-in-force were $1.4 billion at June 30, 2024, representing a 6.1% increase from the prior year period, primarily due to continued proactive underwriting actions and rate increases across the entire portfolio, despite an intentional policy count reduction of approximately 69,000 policies. Premiums-in-force were also favorably impacted by strategic growth of the Company’s commercial residential product and use of inflation guard across all products. Concurrently, TIV was down by 5.1% from the prior year period.

Current wording

Premiums-in-force were $1.4 billion at September 30, 2024, representing a 6.0% increase from the prior year quarter, primarily due to continued proactive underwriting actions and rate increases across the entire portfolio, despite an intentional policy count reduction of approximately 66,000 policies. Premiums-in-force were also favorably impacted by strategic growth of the Company’s commercial residential product and use of inflation guard across all products and states. Concurrently, TIV was down by 5.6% from the prior year quarter.

Previous wording

Gross premiums earned were $691.5 million for the six months ended June 30, 2024, up 6.9% from $647.0 million in the prior year period. The increase reflects higher gross premiums written over the preceding twelve months driven by a higher average premium per policy, reflecting rate increases and the use of inflation guard, and organic growth of the commercial residential business.

Current wording

Gross premiums earned were $1.0 billion for the nine months ended September 30, 2024, up 6.3% from $984.0 million in the prior year period. The increase reflects higher gross premiums written over the preceding twelve months driven by a higher average premium per policy, reflecting rate increases and the use of inflation guard, and organic growth of the commercial residential business.

Previous wording

Ceded premiums were $321.7 million for the six months ended June 30, 2024, up 5.8% from $304.2 million in the prior year period. The increase is attributable to an increase in the cost of our catastrophe excess of loss reinsurance program, which commences June 1 each year, driven by an increase in TIV and higher reinsurance costs, partly offset by a lower cost for our net quota share reinsurance associated with cession and associated premium volume changes. Additionally, the six months ended June 30, 2024 includes a $18.7 million reinstatement premium related to Hurricane Ian which did not occur in the prior year period. To the extent the ultimate losses for Hurricane Ian grow, additional reinstatement premiums may be incurred depending upon the amount of additional reinsurance limit utilized.

Current wording

Ceded premiums were $477.1 million for the nine months ended September 30, 2024, up 2.7% from $464.5 million in the prior year period. The higher cost of our catastrophe excess of loss reinsurance program, which commences June 1 each year, was offset by a lower cost for our net quota share reinsurance associated with cession and associated premium volume changes. However, the nine months ended September 30, 2024 includes a $18.7 million reinstatement premium related to Hurricane Ian which did not occur in the prior year period. To the extent the ultimate losses for Hurricane Ian grow, additional reinstatement premiums may be incurred depending upon the amount of additional reinsurance limit utilized.