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, 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.

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, the “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, 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.

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"). To the extent that reinsurance costs rise, we may seek to recoup the cost of reinsurance in future rate filings as well as mitigate the cost through exposure management.

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 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.

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 June 30, 2025 and comparing those metrics to June 30, 2024.

Previous 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.

Current wording

Florida policies-in-force declined from the prior year quarter by 10.4% while premiums-in-force decreased 6.4%, and TIV was up by less than 1.0%. The decrease in Florida premium-in-force was driven primarily by a reduction in our personal lines policy count related to intentional exposure management during the last several years. The exposure management goals were met and given the Company's achievement of rate adequacy in a majority of our territories, the Company is expanding its Florida territories which are open for new business, with an expectation of modest growth by the end of 2025. The in-force premium for our Florida commercial lines business is also down, driven by competitive market conditions. Compared to the quarter ended March 31, 2025, our policy count is down 2.0%, with a 0.2% reduction in premiums-in-force, and a 0.4% increase in total insured value.

Previous 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.

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 14.1% for the quarter ended June 30, 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 in-force premium in that line of business expected 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 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.

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%,which we believe is driven in large part due to a challenging property insurance market in many of the regions in which we operate, as well as our agency relationships and policyholder service. 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 grow our business in 2025.

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. Florida personal lines claim costs associated with litigated claims have decreased due to favorable legislation over the last several years aimed to curtail claims abuse. This was a significant driver of our Florida exposure reduction in 2024 and previous years. The special legislative session of December 2022 included a number of additional provisions aimed at driving down claims abuses and stabilizing the Florida property insurance market. The legislation appears to be having the intended impact and has improved our outlook on conducting business in Florida.

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. However, the rate at which inflation is increasing is at a lower point than what we have experienced in the last several years. Florida personal lines claim costs associated with litigated claims have decreased due to favorable legislation over the last several years aimed to curtail claims abuse. This was a significant driver of our Florida exposure reduction in 2024 and previous years. The special legislative session of December 2022 included a number of additional provisions aimed at driving down claims abuses and stabilizing the Florida property insurance market. The legislation continues to be having the intended impact and has improved our outlook on conducting business in Florida, such that we intend to grow modestly in Florida in 2025.

Previous 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.

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 observed increased reinsurance supply at competitive pricing as the reinsurance market continues to stabilize and improve.

Previous 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.

Current wording

•Gross premiums earned were $353.6 million, up 1.0% from $350.1 million in the prior year quarter, reflecting higher gross premiums written over the last twelve months primarily from rating actions.

Previous wording

•Ceded premium ratio was 43.5%, down 3.9 points from 47.4% in the prior year quarter driven by growth in gross premiums earned and less ceded premium as described above.

Current wording

•Ceded premium ratio was 44.5%, down 1.1 points from 45.6% in the prior year quarter driven by growth in gross premiums earned and less ceded premium as described above.

Previous wording

•Net loss ratio decreased to 49.7%, a 7.2 point improvement from 56.9% in the same quarter last year, reflecting higher net premiums earned, coupled with slightly lower net losses and LAE. Net weather and catastrophe losses for the current year quarter were $43.5 million, an increase of $25.1 million from $18.4 million in the prior quarter. Net losses in the current year quarter include non-hurricane catastrophe losses of $31.8 million from the California wildfires, which was a $15.9 million increase over the non-hurricane catastrophe losses of $15.9 million incurred in the prior year quarter. Other weather losses totaled $11.7 million, an increase of $9.2 million from the prior year quarter amount of $2.5 million. The higher catastrophe and weather losses were more than offset by significantly lower attritional losses and favorable reserve development compared to the prior year quarter. Favorable net loss development was $7.8 million in the current year quarter compared to adverse development of $6.7 million in the prior year quarter.

Current wording

•Net loss ratio decreased to 38.5%, a 17.2 point improvement from 55.7% in the same quarter last year, reflecting significantly lower net losses and LAE, coupled with higher net premiums earned. Net weather losses for the current year quarter were $12.5 million, a decrease of $7.2 million from $19.7 million in the prior year quarter. There were no catastrophe losses in the current or prior year quarters. The reduction in weather losses was coupled with a reduction in attritional losses and favorable reserve development compared to the prior year quarter. Favorable net loss development was $2.3 million in the current year quarter compared to adverse development of $8.7 million in the prior year quarter.

Previous 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.

Current wording

•The net expense ratio was 34.4%, a 2.4 point improvement from the prior year quarter amount of 36.8%, driven by growth in net premiums earned, coupled with higher ceding commission income which decreased the net policy acquisition cost ratio by 2.8%. Higher ceding commission income was associated with both a larger amount of premium ceded under the net quota share program and a higher ceding commission rate driven by favorable loss experience for that program. This offset a one-half point increase in the net general and administrative expense ratio.

Previous 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.

Current wording

•Net combined ratio of 72.9% improved 19.6 points from 92.5% in the prior year quarter, driven by primarily by a lower net loss ratio as well as a lower net expense ratio as described above.

Previous wording

•Net investment income was $8.6 million, which was flat from the first quarter of 2024. We continue to manage our investment portfolio, while maintaining a conservative portfolio with high quality investments and duration liability matched.

Current wording

•Net investment income was $9.0 million, a decrease from $9.8 million in the prior year quarter, primarily driven by a lower interest rate environment for our sweep accounts and money market funds. We continue to manage our investment portfolio, while maintaining a conservative portfolio with high quality investments and duration liability matched.

Previous wording

•The effective tax rate was 23.8% compared to 28.4% in the prior year first quarter. We calculate the provision for income taxes during interim reporting periods by applying an estimate of the effective tax rate for the full year. The effective tax rate is lower than the prior year quarter due to higher projected pre-tax income for the year as of the first quarter of 2025. This had a dilutive effect on the rate impacts of permanent tax differences compared to the prior year quarter income tax provision. The effective tax rate can fluctuate throughout the year as estimates used in each quarterly tax provision are updated with additional information.

Current wording

•The effective tax rate was 23.8% compared to 24.1% in the prior year quarter. We calculate the provision for income taxes during interim reporting periods by applying an estimate of the effective tax rate for the full year. The effective tax rate is lower than the prior year quarter due to higher projected pre-tax income for the year 2025 compared to the projection for the year 2024. This had a dilutive effect on the rate impacts of permanent tax differences compared to the prior year quarter income tax provision. The effective tax rate can fluctuate throughout the year as estimates used in each quarterly tax provision are updated with additional information.

Previous 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.

Current wording

Total revenue was $208.0 million, up 2.2% compared to $203.6 million in the prior year quarter. The increase primarily stems from higher net premiums earned as described below.

Previous wording

Gross premiums written were $356.0 million, down 0.2% from $356.7 million in the prior year quarter reflecting exposure management trends over the last several years for personal lines business which is expected to reverse during 2025 as managed growth initiative is deployed.

Current wording

Gross premiums written were $411.0 million, down 3.2% from $424.5 million in the prior year quarter reflecting exposure management trends over the last several years for personal lines business which is expected to reverse during 2025 as our managed growth initiative is deployed. Additionally, we experienced a reduction of written premium for commercial residential business, primarily related to a reduction of the in-force premium for this business driven by competitive market conditions.

Previous wording

Premiums-in-force were $1.43 billion as of first quarter 2025, an increase of 3.3% compared to $1.39 billion as of first quarter 2024, driven mostly by rate actions taken while concurrently, TIV decreased by 6.4%.

Current wording

Premiums-in-force were $1.43 billion as of second quarter 2025, an increase of 0.5% compared to $1.42 billion as of second quarter 2024, driven by rate actions taken and a reduction in policies in force, while concurrently, TIV decreased by 4.7%.

Previous wording

Gross premiums earned of $353.8 million were up 3.6% from $341.4 million in the prior year quarter, reflecting higher gross premiums written over the last nine months of 2024, driven by rating actions, use of inflation guard, and organic growth of our commercial residential business.

Current wording

Gross premiums earned of $353.6 million were up 1.0% from $350.1 million in the prior year quarter, reflecting higher gross premiums written over the last twelve months, driven by rating actions and use of inflation guard.

Previous 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.

Current wording

Ceded premiums were $157.3 million in second quarter 2025, down 1.6% from $159.8 million in the prior year quarter. The decrease relates primarily to a $10.0 million reinstatement premium for Hurricane Ian during the second quarter of 2024 which did not recur in the current year quarter. 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. This was partly offset by higher ceded premium on our net quota share program, driven by a higher cession rate coupled with higher written premium subject to that program.

Previous 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.

Current wording

Net premiums earned were $196.3 million in second quarter 2025, up 3.2% from $190.3 million in the prior year quarter. The increase primarily stems from growth in gross premiums earned coupled with a reduction in ceded premiums, as described above.

Previous wording

Total expenses were $169.1 million in first quarter 2025, up 0.3% and relatively flat compared to $168.6 million in the prior year quarter. As described below, losses and LAE declined, policy acquisition costs declined, and general and administrative expenses increased.

Current wording

Total expenses were $143.2 million in second quarter 2025, down 18.6% compared to $175.9 million in the prior year quarter. As described below, losses and LAE declined, policy acquisition costs declined, and general and administrative expenses increased.

Previous 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.

Current wording

Second quarter 2025 net income was $48.0 million or $1.55 per diluted share, compared to net income of $18.9 million or $0.61 per diluted share in the prior year quarter, primarily driven by a significant reduction in losses and LAE, an increase in net premiums earned and a reduction in 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 continue to favorably impact results. These and other actions resulted in growth of 3.2% in net premiums earned while investment income was down due to a lower interest rate environment. Losses and LAE decreased by 28.6%, driven primarily from lower attritional losses and favorable net loss development coupled with lower weather losses. Policy acquisition costs decreased 8.6%, driven by an increase in ceding commission on the net quota share reinsurance contract, which offsets higher costs that vary with gross premiums written. General and administrative costs increased 7.1% driven primarily by human capital costs, with the net general and administrative expense ratio one-half point higher than the prior year quarter.

Previous wording

Interest expense, net was $2.4 million in the first quarter of 2025, slightly lower than $2.8 million for the prior year quarter.

Current wording

Interest expense, net was $1.9 million in the second quarter of 2025, lower than $2.8 million for the prior year quarter, driven by the reduction in debt obligations and a lower interest rate environment.

Previous wording

The income tax expense was $9.5 million in first quarter 2025 compared to $5.6 million in the prior year quarter, with the higher provision in the current quarter driven by higher pre-tax earnings compared to the prior year quarter. The effective tax rate for the current year quarter was 23.8% compared to 28.4% in the prior year quarter. We calculate the provision for income taxes during interim reporting periods by applying an estimate of the effective tax rate for the full year. The effective tax rate is lower than the prior year quarter, which was driven primarily by differences in projected pre-tax income for the calendar year, which includes a dilutive effect on the rate impacts of permanent tax differences compared to the prior year quarter income tax provision. The effective tax rate can fluctuate throughout the year as estimates used in the quarterly tax provision are updated with additional information.

Current wording

Income tax expense was $15.0 million in second quarter 2025 compared to $6.0 million in the prior year quarter, with the higher provision in the current quarter driven by higher pre-tax earnings compared to the prior year quarter. The effective tax rate for the current year quarter was 23.8% compared to 24.1% in the prior year quarter. We calculate the provision for income taxes during interim reporting periods by applying an estimate of the effective tax rate for the full year. The effective tax rate is lower than the prior year quarter, which was driven primarily by differences in projected pre-tax income for the calendar year, which includes a dilutive effect on the rate impacts of permanent tax differences compared to the prior year quarter income tax provision. The effective tax rate can fluctuate throughout the year as estimates used in the quarterly tax provision are updated with additional information.

Previous 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.

Current wording

The net combined ratio was 72.9% in second quarter 2025, a 19.6 point improvement from 92.5% 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 ceded premium ratio was 43.5% in first quarter 2025, a 3.9 point improvement from 47.4% in the prior year quarter, primarily driven by growth in gross premiums earned as well as lower reinsurance costs, as described above.

Current wording

The ceded premium ratio was 44.5% in second quarter 2025, a 1.1 point improvement from 45.6% in the prior year quarter, primarily driven by growth in gross premiums earned as well as lower reinsurance costs, as described above.

Previous 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.

Current wording

The net loss and LAE ratio was 38.5% in second quarter 2025, a 17.2 point improvement from 55.7% in the prior year quarter, reflecting higher net premiums earned and a significant decrease in net losses and LAE as described above.

Previous wording

The net expense ratio was 34.8%, a 2.3 point improvement from the prior year quarter amount of 37.1%, primarily driven by growth in net premiums earned which, coupled with higher ceding commission income, lowered the net policy acquisition costs ratio but was partly offset by a higher net general and administrative expense ratio.

Current wording

The net expense ratio was 34.4%, a 2.4 point improvement from the prior year quarter amount of 36.8%, primarily driven by growth in net premiums earned which, coupled with higher ceding commission income, lowered the net policy acquisition costs ratio. This was partly offset by a half point higher net general and administrative expense ratio.

Previous wording

Losses and LAE incurred were $99.4 million in first quarter 2025, down 2.6% from $102.0 million in the prior year quarter. The decrease primarily stems from lower attritional losses and favorable net loss development which offset the impact of higher weather and catastrophe losses. Net weather and catastrophe losses for the current accident quarter were $43.5 million, an increase from $18.4 million in the prior year quarter. Catastrophe losses were $31.8 million compared to $15.9 million in the prior year quarter. Other weather losses totaled $11.7 million, an increase from the prior year quarter amount of $2.5 million. Net favorable prior year loss development was $7.8 million for the first quarter of 2025 compared to net unfavorable loss development of $6.7 million for the prior year quarter.

Current wording

Losses and LAE incurred were $175.0 million for the six month period ended June 30, 2025, down 15.8% from $208.0 million in the prior year period. The decrease primarily stems from lower attritional losses and favorable net loss development which more than offset the impact of higher weather and catastrophe losses. Net weather and catastrophe losses for the current accident quarter were $56.1 million, an increase from $18.0 million from $38.1 million in the prior year period. Catastrophe losses were $31.8 million compared to $15.9 million in the prior year period. Other weather losses totaled $24.3 million, an increase from the prior year period amount of $22.2 million. Net favorable prior year loss development was $10.0 million for the six months of 2025 compared to net unfavorable loss development of $15.4 million for the prior year period.

Previous 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.

Current wording

Policy acquisition costs were $89.0 million for the six month period ended June 30, 2025, down 5.5% from $94.2 million in the prior year period. 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 as well as a higher ceding commission rate driven by favorable loss experience for that program.

Previous wording

General and administrative expenses were $23.9 million in first quarter 2025, up 21.5% from $19.6 million in the prior year quarter. The increase was driven largely by higher costs related to software and associated costs with the implementation of a new claims, billing and policy system, higher regulatory costs, and higher human capital related costs including medical insurance and stock compensation. The policy, billing and claims system was placed in service on a pilot basis late in the third quarter of 2024. Certain costs associated with the system are currently being capitalized as development is still in progress and the previously capitalized costs are now being amortized, which drives up general and administrative expenses. The Company’s implementation of enhanced and updated claims, policy, and billing systems is expected to achieve efficiencies, enhance customer service, and improve the timeliness and quality of data analytics used to drive underwriting income.

Current wording

General and administrative expenses were $48.3 million for the six month period ended June 30, 2025, up 13.8% from $42.4 million in the prior year period. The increase was driven largely by higher costs related to software and associated costs with the implementation of a new claims, billing and policy system, higher regulatory costs, and higher human capital related costs including medical insurance and stock compensation. The policy, billing and claims system was placed in service on a pilot basis late in the third quarter of 2024. Certain costs associated with the system are currently being capitalized as development is still in progress and the previously capitalized costs are now being amortized, which drives up general and administrative expenses. The Company’s implementation of enhanced and updated claims, policy, and billing systems is expected to achieve efficiencies, enhance customer service, and improve the timeliness and quality of data analytics used to drive underwriting income.

Previous wording

First quarter 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, while total expenses were relatively flat. Theimprovement in net income is attributable to the positive impact of rate actions, underwriting actions, and exposure management taken during the last several years, which favorably impacted results during first quarter 2025. These actions resulted in growth of 11.5% in net premiums earned, with a 2.6% decrease in net losses and LAE, as described below. Policy acquisition costs decreased 2.4%, primarily related to an increase in ceding commission income on the net quota share reinsurance contracts. General and administrative costs increased 21.5% driven primarily by costs associated with software, including a new claims, billing and policy system as well as an increase in certain human capital costs as described above.

Current wording

For the six months ended June 30, 2025 net income was $78.5 million or $2.54 per diluted share, compared to net income of $33.1 million or $1.08 per diluted share in the prior year period, primarily driven by a significant decrease in loss and LAE, an increase in net premiums earned, and lower operating expenses. Theimprovement in net income is attributable to the positive impact of rate actions, underwriting actions, and exposure management taken during the last several years, which favorably impacted results for the period ended June 30, 2025. These actions resulted in growth of 7.2% in net premiums earned, with a 15.8% decrease in net losses and LAE, as described above. Policy acquisition costs decreased 5.5%, primarily related to an increase in ceding commission income on the net quota share reinsurance contracts. General and administrative costs increased 13.8% driven primarily by costs associated with software, including a new claims, billing and policy system as well as an increase in certain human capital costs as described above.

Previous wording

At March 31, 2025, fixed income securities increased by $11.8 million to $667.4 million from $655.6 million at December 31, 2024. The increase primarily relates to purchases of fixed income securities in longer duration to lock in interest rates.

Current wording

At June 30, 2025, fixed income securities increased by $9.8 million to $665.4 million from $655.6 million at December 31, 2024. The increase primarily relates to purchases of fixed income securities in longer duration to lock in interest rates.

Previous wording

At March 31, 2025, reinsurance recoverable on paid and unpaid claims decreased by $147.1 million to $593.1 million from $740.2 million at December 31, 2024. The decrease was primarily driven by reinsurance reimbursements collected during the first quarter of 2025, primarily associated with claims payments for Hurricanes Ian and Milton as well as a reduction in ultimate losses for certain catastrophic events which reduced reinsurance recoverable on unpaid claims as claims developed favorably.

Current wording

At June 30, 2025, reinsurance recoverable on paid and unpaid claims decreased by $216.2 million to $524.0 million from $740.2 million at December 31, 2024. The decrease was primarily driven by reinsurance reimbursements collected during the six months ended June 30, 2025, primarily associated with claims payments for Hurricanes Ian and Milton as well as a reduction in ultimate losses for certain catastrophic events which reduced reinsurance recoverable on unpaid claims as claims developed favorably during 2025.

Previous wording

At March 31, 2025, unpaid losses and loss adjustment expenses decreased by $193.8 million to $848.9 million from $1.04 billion at December 31, 2024. This amount represents unpaid loss and loss adjustment expenses excluding any reinsurance recoveries. The decrease was primarily due to payment of claims for Hurricanes Milton and Ian during first quarter 2025, as well as a reduction in ultimate losses for certain catastrophic events as claims developed favorably.

Current wording

At June 30, 2025, unpaid losses and loss adjustment expenses decreased by $329.5 million to $713.2 million from $1.04 billion at December 31, 2024. This amount represents unpaid loss and loss adjustment expenses excluding any reinsurance recoveries. The decrease was primarily due to payment of claims for Hurricanes Milton and Ian during the six months ended 2025, as well as a reduction in ultimate losses for certain catastrophic events as claims developed favorably during 2025.

Previous wording

At March 31, 2025, long-term debt decreased by $21.5 million to $94.8 million from $116.3 million at December 31, 2024, driven by the payoff of a loan from the FHLB-ATL in March 2025 as well as principal payments on other long-term debt.

Current wording

At June 30, 2025, long-term debt decreased by $24.0 million to $92.4 million from $116.3 million at December 31, 2024, driven by the payoff of a loan from the FHLB-ATL in March 2025 as well as principal payments on other long-term debt.

Previous 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.

Current wording

At June 30, 2025, total shareholders’ equity increased by $92.5 million to $383.3 million from $290.8 million at December 31, 2024. The increase was primarily due to net income for the six month period ended June 30, 2025 as well as a benefit in accumulated other comprehensive loss driven by a reduction of unrealized losses during that period of 2025 in the amount of $11.1 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. 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.

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 June 30, 2025, we had $473.5 million of cash and cash equivalents and $671.3 million in investments, compared to $452.7 million and $663.4 million, respectively, as of December 31, 2024. As described above, the increase in cash and cash equivalents was primarily a result of net cash provided by operations, which was held in money market funds for liquidity.

Previous wording

We may increase capital expenditures consistent with our investment plans and anticipated business strategies. Cash and cash equivalents may not be sufficient to fund such expenditures. As such, in addition to the use of our existing Credit Facilities, we may need to utilize additional debt to secure funds for such purposes.

Current wording

We may increase capital expenditures consistent with our investment plans and anticipated business strategies. Cash and cash equivalents may not be sufficient to fund such expenditures. As such, in addition to the use of our existing Credit Facilities, we may need to utilize additional debt to secure funds for such purposes. For information regarding the Credit Facilities which was amended and restated on July 22, 2025 refer to Note 22. Subsequent Events in addition to the discussion under the section titled Financing Activities "Credit Facilities" below.