Heritage Insurance Holdings, Inc.

Previous wording

You should read the following discussion in conjunction with our condensed consolidated financial statements and related notes and other information included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”). Unless the context requires otherwise, as used in this Form 10-Q, the terms “we”, “us”, “our”, “the Company”, “our Company”, and similar references refer to Heritage Insurance Holdings, Inc., a Delaware corporation, and its subsidiaries.

Current wording

You should read the following discussion in conjunction with our condensed consolidated financial statements and related notes and other information included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2024 (as amended“2024 Form 10-K”). Unless the context requires otherwise, as used in this Form 10-Q, the terms “we”, “us”, “our”, “the Company”, “our Company”, and similar references refer to Heritage Insurance Holdings, Inc., a Delaware corporation, and its subsidiaries.

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 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.

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, 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 total insured value ("TIV"). 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 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.

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 March 31, 2025 and comparing those metrics to March 31, 2024. One of our strategies had been to reduce personal lines exposure in Florida, given historical abusive claims practices. Since 2022, several legislative changes have been implemented to positively impact the Florida property insurance market by curtailing assignment of benefits and litigated claims abuses. The positive impact of these legislative changes is reflected in our loss trends. As such, we anticipate writing more organic personal lines business in the State of Florida. Coupled with more adequate rates, we are pursuing a strategy of controlled growth and have selectively opened personal lines markets across our footprint for new business.

Previous 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.

Current wording

Florida policies-in-force declined from the prior year quarter by 12.1% while premiums-in-force decreased 3.0%, and TIV was down by 1.1%. The decrease in Florida premium-in-force was driven by a reduction in policy count related to intentional exposure management during 2024. The exposure management goals were met and given the Company's achievement of rate adequacy in 90% of our regions, the Company is expanding its Florida territories open for new business, with an expectation of modest growth by the end of 2025. Compared to the quarter ended March 31, 2024, the policy count for markets outside of Florida decreased 14.3% due to underwriting actions and intentional exposure management, resulting in a TIV decrease of 8.3% while premiums-in-force increased 10.1% due to rating actions, including use of inflation guard.

Previous wording

The following provides an update to our strategic initiatives aimed at achieving consistent long-term quarterly earnings and driving shareholder value.

Current wording

The Company has focused on three main strategic initiatives over the past few years aimed at achieving consistent long-term quarterly earnings and driving shareholder value, which include:

Previous wording

Generate underwriting profit through rate adequacy and more selective underwriting.

Current wording

•Generating underwriting profit through rate adequacy and more selective underwriting.

Previous wording

Allocate capital to products and geographies that maximize long-term returns.

Current wording

•Allocating capital to products and geographies that maximize long-term returns.

Previous wording

Maintain a balanced and diversified portfolio.

Current wording

•Maintaining a balanced and diversified portfolio.

Previous 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.

Current wording

We address reinsurance and loss costs trends in the property insurance sector through rates and inflation guard factors which resulted in an increase in the average premium per policy of 19.5% for the quarter ended March 31, 2025 as compared to the prior year quarter. The higher average premium is driven by rate changes, inclusion of inflation guard, and by the mix of business written. We experienced intentional growth of our commercial residential business during 2024 with growth in that line of business expecting to flatten during 2025. 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 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.

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 steadily 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 managing exposure and achieving rate adequacy throughout our book of business as we prudently growing our business in 2025.

Previous wording

Our industry experienced significantly higher reinsurance costs and more constrained availability for catastrophe excess of loss reinsurance in recent years. For the 2024 hurricane season, the supply of catastrophe excess of loss reinsurance for the Company was ample and pricing and terms have begun to moderate. 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.

Current wording

Our industry had experienced significantly higher reinsurance costs and more constrained availability for catastrophe excess of loss reinsurance in 2022 and 2023. For the 2024 hurricane season, the supply of catastrophe excess of loss reinsurance for the Company was ample and pricing began to moderate. For the 2025 hurricane season, we are seeing an increase in the supply of reinsurance at improved risk-adjusted costs.

Previous 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.

Current wording

•First quarter ended 2025 net income was $30.5 million or $0.99 per diluted share, compared to net income of $14.2 million or $0.47 per diluted share in the prior year quarter, primarily driven by an increase in net premiums earned and relatively flat total 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 continue to favorably impact results. These and other actions resulted in growth of 11.5% in net premiums earned while investment income was flat, and losses and LAE decreased by 2.6%. Policy acquisition costs decreased 2.4%, driven by an increase in ceding commission on the net quota share reinsurance contract, which offset higher costs that vary with gross premiums written. General and administrative costs increased 21.5% driven primarily by software and system related expenses and human capital costs, with the net general and administrative expense ratio 1.0 point higher than the prior year quarter.

Previous 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.

Current wording

•Gross premiums earned were $353.8 million, up 3.6% from $341.4 million in the prior year quarter, reflecting higher gross premiums written over the last twelve months from commercial residential business growth and rating actions.

Previous wording

•Net expense ratio was 35.2%, down 1.2 points from 36.4% in the prior year quarter, with a decrease in the net general and administrative ("G&A") ratio partly offset by a small increase in the net policy acquisition costs ("PAC") ratio. The higher PAC ratio was primarily due to higher policy acquisition costs driven by the increase in gross premiums written and a reduction in ceding commission income, which was partly offset by higher net premiums earned.

Current wording

•Net expense ratio was 34.8%, a 2.3 point improvement from the prior year quarter amount of 37.1%, driven by growth in net premiums earned, coupled with higher ceding commission income which decreased the net policy acquisition cost ratio by 3.3%, which was partly offset by a 1.0% increase in the net general and administrative expense ratio.

Previous wording

•Net combined ratio was 100.6% improved 10.2 points from 110.8% in the prior year quarter, driven by a lower net loss ratio and a lower net expense ratio as described above.

Current wording

•Net combined ratio of 84.5% improved 9.5 points from 94.0% in the prior year quarter, driven by a lower net loss ratio and lower net expense ratio as described above.

Previous 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.

Current wording

Total revenue was $211.5 million, up 10.6% compared to $191.3 million in the prior year quarter. The increase primarily stems from higher net premiums earned as described below.

Previous 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.

Current wording

Ceded premiums were $153.8 million in first quarter 2025, down 5.0% from $162.0 million in the prior year quarter. The decrease relates primarily to an $8.7 million reinstatement premium for Hurricane Ian during the first quarter of 2024 and in the first quarter of 2025, a $1.4 million reduction in the Hurricane Ian reinstatement premium previously accrued. To the extent the ultimate losses for Hurricanes Ian or Milton grow, additional reinstatement premiums may be incurred, depending upon the amount of additional reinsurance limit utilized.

Previous 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.

Current wording

Net premiums earned were $200.0 million in first quarter 2025, up 11.5% from $179.4 million in the prior year quarter. The increase primarily stems from growth in gross premiums earned coupled with a decline in ceded premiums, as described above.

Previous wording

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

Current wording

Net investment income was $8.6 million in first quarter 2025, relatively flat compared to the prior year quarter.

Previous wording

•Losses and loss adjustment expenses ("LAE") incurred was $130.0 million, down 1.0% from $131.4 million in the prior year quarter. The decrease primarily stems from a reduction in non-weather losses which was partly offset by higher weather losses and adverse loss 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 compared to $40.1 million in the prior year quarter. Other weather losses totaled $14.3 million, showing an increase from the prior year quarter amount of $11.5 million. Additionally, losses were impacted by net unfavorable loss development of $6.3 million during the third quarter of 2024, compared to net unfavorable loss development of $0.8 million in the third quarter of 2023.

Current wording

Losses and loss adjustment expenses ("LAE")

Previous 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.

Current wording

Policy acquisition costs were $45.8 million in first quarter 2025, down 2.4% from $46.9 million in the prior year quarter. The decrease is primarily attributable to higher ceding commission earned on the net quota share reinsurance contract, the income of which offsets other policy acquisition costs. The increase in ceding commission income is due to changes in the program which incepted December 31, 2024 and included a higher ceded rate as well more written premium applicable to the program.

Previous wording

The net combined ratio was 100.6% for the third quarter of 2024, a 10.2 point improvement from 110.8% in the prior year quarter. The decrease primarily stems from a lower net loss and LAE ratio and a lower net expense ratio as described below.

Current wording

The net combined ratio was 84.5% in first quarter 2025, a 9.5 point improvement from 94.0% in the prior year quarter. The decrease primarily stems from a lower net loss and LAE ratio and lower net expense ratio as described below.

Previous 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.

Current wording

The net loss and LAE ratio was 49.7% in first quarter 2025, a 7.2 point improvement from 56.9% in the prior year quarter, reflecting higher net premiums earned, coupled with a decrease in net losses and LAE as described above.

Previous wording

At September 30, 2024, total shareholders’ equity increased by $59.1 million to $279.3 million from $220.3 million at December 31, 2023. The increase is primarily due to net income for the nine months ended September 30, 2024, coupled with a reduction in accumulated other comprehensive losses resulting as lower interest rates during the period reduced the amount of unrealized losses.

Current wording

At March 31, 2025, total shareholders’ equity increased by $38.2 million to $329.0 million from $290.8 million at December 31, 2024. The increase was primarily due to net income for the quarter ended March 31, 2025 as well as a benefit in accumulated other comprehensive loss driven by a reduction of unrealized losses during the first quarter of 2025 in the amount of $8.5 million.

Previous wording

Our principal sources of liquidity include cash flows generated from operations, existing cash and cash equivalents, our marketable securities balances and borrowings available under our Credit Facilities. At September 30, 2024, we had $520.9 million of cash and cash equivalents and $680.4 million in investments, compared to $473.3 million and $569.4 million, respectively, as of December 31, 2023. The increase in cash and cash equivalents relates primarily to timing of receipts of premiums and reinsurance recoveries, partly offset by timing of reinsurance premium and claim payments.

Current wording

Our principal sources of liquidity include cash flows generated from operations, existing cash and cash equivalents, our marketable securities balances and borrowings available under our Credit Facilities. As of March 31, 2025, we had $439.4 million of cash and cash equivalents and $673.4 million in investments, compared to $463.6 million and $663.4 million, respectively, as of December 31, 2024. As described above, the decrease in cash and cash equivalents was primarily due to a payoff of the FHLB-ATL loan, pay down on other debt, and strategic investment of funds into longer duration fixed income securities to lock in current interest rates.

Previous wording

Net cash provided by operating activities was $143.2 million for the nine months ended September 30, 2024 compared to net cash used in operating activities of $29.3 million for the comparable period in 2023. The increase in net cash from operating activities relates primarily to timing of cash flows associated with premium collection, claim and reinsurance payments as well as reinsurance reimbursements during the first nine months of 2024 compared to the first nine months of 2023. Premium collection for the first nine months of 2024 exceeded premium collection for the first nine months of 2023, driven largely by growth in gross premiums written. The timing of reinsurance payments on the catastrophe excess of loss program were more accelerated for the 2023 program than the 2024 program.

Current wording

Net cash provided by operating activities was $837,000 for the three months ended March 31, 2025 compared to net cash provided by operating activities of $4.3 million for the comparable period in 2024. The decrease in cash provided by operating activities relates primarily to timing of cash flows associated with claim and reinsurance payments as well as reinsurance reimbursements during the three months ended March 31, 2025 compared to the three months ended March 31,2024.

Previous wording

Net cash used in investing activities for the nine months ended September 30, 2024 was $93.8 million as compared to net cash used in investing activities of $12.4 million for the comparable period in 2023. The change in net cash used in investing activities relates primarily to the timing of investment maturities and use of proceeds and availability of cash to invest in longer duration fixed income securities during the first nine months of 2024 to lock in current interest rates.

Current wording

Net cash used in investing activities for the three months ended March 31, 2025 was $3.5 million as compared to net cash used in investing activities of $83.3 million for the comparable period in 2024. The change in cash used in investing activities relates primarily to timing of investment maturities and use of proceeds as well as availability of existing cash to invest in longer duration fixed income securities to lock in current interest rates.

Previous wording

Net cash used in financing activities for the nine months ended September 30, 2024 was $1.7, as compared to net cash used in financing activities of $7.3 million for the comparable period in 2023. The change in net cash provided by financing activities relates primarily to the proceeds from a January 2024 loan in the amount of $5.5 million to an insurance company subsidiary from the FHLB-DM.

Current wording

Net cash used in financing activities for the three months ended March 31, 2025 was $21.7 million, as compared to cash provided by financing activities of $3.1 million for the comparable period in 2024. The change in net cash from financing activities relates primarily to the repayment of the FHLB-ATL loan agreement for $19.2 million during the first quarter of 2025 as well $5.5 million of proceeds in the first quarter of 2024 from a FHLB Des Moines loan.

Previous wording

Term Loan Facility. 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 Term Loan Facility matures on July 28, 2026. As of September 30, 2024 and December 31, 2023, there was $72.5 million and $79.6 million, respectively, in aggregate principal outstanding under the Term Loan Facility.

Current wording

Term Loan Facility. 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 Term Loan Facility matures on July 28, 2026. As of March 31, 2025 and December 31, 2024, there was $67.8 million and $70.1 million, respectively, in aggregate principal outstanding under the Term Loan Facility.

Previous wording

Revolving Credit Facility. The Revolving Credit Facility allows for borrowings of up to $50 million inclusive of a sublimit for the issuance of letters of credit equal to the unused amount of the Revolving Credit Facility and a sublimit for swingline loans equal to the lesser of $25 million and the unused amount of the Revolving Credit Facility. At September 30, 2024 and December 31, 2023, the outstanding balance under the Revolving Credit facility was $10.0 million. At September 30, 2024, the Company had no outstanding letters of credit issued from the Revolving Credit Facility.

Current wording

Revolving Credit Facility. The Revolving Credit Facility allows for borrowings of up to $50 million inclusive of a sublimit for the issuance of letters of credit equal to the unused amount of the Revolving Credit Facility and a sublimit for swingline loans equal to the lesser of $25.0 million and the unused amount of the Revolving Credit Facility. At March 31, 2025 and December 31, 2024, the outstanding balance under the Revolving Credit facility was $10.0 million. During 2024, the Company secured letters of credit in aggregate of $24.4 million with a maturity date of March 16, 2025. As of December 31, 2024, the letters of credit remained outstanding and there were no draws as of such date. There were no draws on the letters of credit during 2025, which were cancelled effective on their maturity date of March 16, 2025. At March 31, 2025, the Company had no outstanding letters of credit issued from the Revolving Credit Facility.

Previous wording

The applicable margin for loans under the Credit Facilities varies from 2.75% per annum to 3.25% per annum (for SOFR loans) and 1.75% to 2.25% per annum (for base rate loans) based on our consolidated leverage ratio ranging from 1.25-to-1 to greater than 2.25-to-1. Interest payments with respect to the Credit Facilities are required either on a quarterly basis (for base rate loans) or at the end of each interest period (for SOFR loans) or, if the duration of the applicable interest period exceeds three months, then every three months. As of September 30, 2024, the borrowings under the Term Loan Facility and Revolving Credit Facility accruing interest at a rate of 8.192% and 8.102% per annum, respectively.

Current wording

The applicable margin for loans under the Credit Facilities varies from 2.75% per annum to 3.25% per annum (for SOFR loans) and 1.75% to 2.25% per annum (for base rate loans) based on our consolidated leverage ratio ranging from 1.25-to-1 to greater than 2.25-to-1. Interest payments with respect to the Credit Facilities are required either on a quarterly basis (for base rate loans) or at the end of each interest period (for SOFR loans) or, if the duration of the applicable interest period exceeds three months, then every three months. As of March 31, 2025, the borrowings under the Term Loan Facility and Revolving Credit Facility accruing interest at a rate of 7.172% and 7.195% per annum, respectively.

Previous wording

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 the trustee party thereto (the “Trustee”).

Current wording

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, the trustee party thereto (the “Trustee”).

Previous wording

At any time prior to February 1, 2037, the Company may redeem for cash all or any portion of the Convertible Notes, at the Company’s option, at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Convertible Notes, which means that the Company is not required to redeem or retire the Convertible Notes periodically.

Current wording

At any time prior to February 1, 2037, the Company may redeem for cash all or any portion of the Convertible Notes, at the Company’s option, at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Convertible Notes, which means that the Company is not required to redeem or retire the Convertible Notes periodically. Holders of the Convertible Notes are able to cause the Company to repurchase their Convertible Notes for cash on any of August 1, 2022, August 1, 2027 and August 1, 2032, in each case at 100% of their principal amount, plus accrued and unpaid interest to, but excluding, the relevant repurchase date.

Previous wording

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. 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. 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 September 30, 2024, the common stock was valued at $1.5 million. 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.

Current wording

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 Atlanta (“FHLB-ATL”) . 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. Membership in the FHLB-ATL required an investment in FHLB-ATL’s common stock which was purchased in December 2018 and valued at $1.4 million. In March 2025, the FHLB-ATL agreement was repaid and the securities were released from pledged collateral. As of March 31, 2025, the subsidiary continues to be a member in FHLB-ATL with its common stock valued at $570,000. The proceeds from the loan were used to prepay the Company’s Senior Secured Notes due 2023 in 2018.

Previous wording

In December 2018, an insurance subsidiary became a member of the FHLB-DM. Membership in the FHLB-DM required an investment in FHLB-DM’s common stock which was purchased in December 2018 and valued at $133,200. In January 2024, the insurance subsidiary of the Company received a 4.23% fixed interest rate cash loan of $5.5 million from the Federal Home Loan Bank (“FHLB-DM”) Des Moines. Additionally, the transaction required the acquired FHLB-DM common stock and certain other investments to be pledged as collateral. As of September 30, 2024, the fair value of the collateralized securities was $7.1 million and the equity investment in FHLB common stock was $295,500.

Current wording

In December 2018, our insurance subsidiary became a member of the Federal Home Loan Bank Des Moines ("FHLB-DM"). Membership in the FHLB-DM required an investment in FHLB-DM’s common stock which was purchased in December 2018 and valued at $133,200. In January 2024, the insurance subsidiary of the Company received a 4.23% fixed interest rate cash loan of $5.5 million from the FHLB-DM. Additionally, the transaction required the acquired FHLB-DM common stock and certain other investments to be pledged as collateral. As of March 31, 2025, the fair value of the collateralized securities was $4.5 million and the equity investment in FHLB-DM common stock was $316,300.