Corporate Overview April 2017
Disclaimer Safe Harbor Statement This presentation contains forward-looking statements that are based on management s beliefs and assumptions and on information currently available to management. Most forward-looking statements contain words that identify them as forward-looking, such as anticipates, believes, continues, could, seeks, estimates, expects, intends, may, plans, potential, predicts, projects, should, will, would or similar expressions and the negatives of those terms that relate to future events. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Heritage Insurance Holdings, Inc. ( Heritage ) to be materially different from any projected results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements represent the beliefs and assumptions of Heritage only as of the date of this presentation and Heritage undertakes no obligation to update or revise publicly any such forward-looking statements, whether as a result of new information, future events or otherwise. As such, Heritage s future results may vary from any expectations or goals expressed in, or implied by, the forwardlooking statements included in this presentation, possibly to a material degree. Heritage cannot assure you that the assumptions made in preparing any of the forward-looking statements will prove accurate or that any long-term financial or operational goals or targets will be realized. For a discussion of some of the important factors that could cause Heritage s results to differ materially from those expressed in, or implied by, the forward-looking statements included in this presentation, investors should refer to risks identified in Heritage s Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission (the SEC ) on March 15, 2017, subsequent Quarterly Reports on Form 10-Q and Heritage s other filings with the SEC. 1
Investment Story Executing Multiple Business Diversification & Expansion Initiatives Seasoned Management Team Attuned to Demands of an Evolving Marketplace Proven Underwriting & Distribution Coupled with Unique Claims Servicing Model Robust Reinsurance Program with Highly Rated Reinsurers Strong, Conservative Capital Structure Capital Return via Quarterly Dividend and Share Repurchase Program 2
Strategic Approach to New Market Opportunities 2012 2013 2014 2015 2016 2017 Initial $23MM equity raise Began writing voluntary policies in Florida Participated in 1 st Citizens take-out Formed the CAN Managed Repair Vendor Program Second $33MM equity raise Formed Osprey Re Assumed 5 Citizens personal residential policies totaling ~90K IPO: NYSE HRTG Acquired the assets of SVM (water mitigation) & formed Heritage Claims Response Team Built commercial residential team Acquired SSIC policies Assumed ~57K personal and 2.2K commercial policies Acquired BRC Restoration Specialists Approved to write P&C in North & South Carolina Assumed ~68K personal and ~830 commercial policies Approved to write P&C in Alabama, Mississippi & Georgia Began writing P&C policies in NC & SC Closed acquisition of Zephyr in Hawaii Launched General Liability in 1Q16 Partnership with National General $79.5MM senior note private placement Began writing P&C policies in Georgia 3
Expansion: Growing Footprint Solidifies Heritage as Strong Regional Carrier in Southeast Multi-State Expansion As of 12/31/16 Hawaii: Zephyr has 73,385 policies-in-force North Carolina: continues to ramp with 6,814 policies-in-force South Carolina: first policies written in 3Q16; 428 policies in force Georgia: first policy written in 1Q17 Alabama & Mississippi licensed to do business 4
Seasoned Management Team Bruce Lucas, Chairman & Chief Executive Officer Entrepreneurial CEO with out-of-box thinking provides innovation in approach to marketplace Pioneered initiatives at the Company in multi-year catastrophe bonds; recognized for marketleading business practices with the 2015 Insurer of the Year award by Insurance Insider Rich Widdicombe, President Accomplished property and casualty executive with over 35 years in the industry Identified the importance of in-house claim mitigation early in company history and executed the acquisition of water remediation assets from SVM Steve Martindale, Chief Financial Officer Experienced insurance executive with over 32 years in the insurance industry Newest member of the management team; background in financial reporting, risk assessment, corporate governance & regulatory compliance Ernie Garateix, Chief Operating Officer Practiced insurance executive with over 20 years in the FL marketplace Hands-on management style promotes the continued success of the Company s technology platform consolidation and new state expansion initiatives Executive team has a wealth of experience and most have worked in the industry for most of their careers 5
Superior Underwriting & Continual Improvement In-house Underwriting Capability Key underwriting factors: Suitability of risk Adequacy of premium for risk Impact on overall geographic mix Internally underwritten / reviewed by Chief Actuary Strict underwriting guidelines promote profitability Active inspection process Ineligible properties Leverage proprietary data analytics and capabilities Fully integrated with reinsurance strategy ability to model impact to reinsurance costs in real time Minimal Exposure to Risky Structures Sinkholes: Screen Enclosures: Aging Roof: Existing Damage: Vacant / Unoccupied: Peers X X X X X Less than.1% of policies have screen enclosure coverage ~40% of Hurricane Wilma losses were related to screen enclosures 6
Strong, Diverse Distribution Relationships Independent Agent Networks Expansion in New States Florida: ~1,500 independent agents actively writing policies Partnership with FAIA Member Services ( FMS ) expands agent relationships Hawaii: ~80 appointed agents writing polices North Carolina: ~250 agents writing policies Partnership with National General; integrated quoting platform South Carolina: ~70 agents writing policies Established relationship with Strategic Insurance Agency Alliance (SIAA) Georgia: ~30 agents writing policies Established relationship with SIAA Agency Relationships Agreements with five large national insurance companies / agencies: 7
Deep Claims Department 24/7 first notice of loss (FNOL) FNOL dispatches mitigation teams to policyholder home In-house claims adjusters and examiners In-house legal reduces losses Vertically integrated water division Typical response time is less than 2 hours from FNOL Prevents AOB contractors from entering home Vertically integrated construction division Typical response time is less than 2 hours from FNOL Prevents AOB contractors from entering home Reduces claims cycle Improves customer satisfaction ~200 employees are dedicated to the claims process Overflow water and construction issues managed by CAN Pre-negotiated vendor rates lower repair costs Ensures fast response times 8
Differentiated Claims Model 24/7 first notice of loss Claims sent to water division & BRC Notice of Loss Mitigation and repair Water division/brc typically respond within 2 hours Benefits: Prevent AOB contractors for entering the home Decreased claims severity Reduced loss experience Constant follow up with client on repair process Fast track claims & customer service reps Adjusting In-house adjusters and examiners Shortened claim tail Increased renewal rates 9
Robust Reinsurance Program 2016-17 Reinsurance Program (1) Conservatism & Strength of Program Over $3B in coverage available from a diversified panel of reinsurance capacity $1.3B $1.2B $339M Unmatched level of coverage compared to peers; testament to our conservative approach and ability to withstand severe events Heritage purchases more multi-year coverage than any of our peers at over $850MM; provides increased certainty on reinsurance costs from year to year despite market fluctuations Heritage has less capital/surplus (low retentions) at risk versus our peers $860MM in total reinstated limit available, with $825MM prepaid (1) For the year ending May 31, 2017. NOTE: Reinsurance coverage may vary from the above illustration depending on loss scenario and state(s) impacted by catastrophe events Source: Willis Towers Watson 10
Modeled Results Represent Program Strength Description Probability % of Coverage Exhausted Worst Individual Storm Hurricane Andrew 1:48 years 41.5% After Andrew storm, $1.98B of reinsurance limit remaining for the same hurricane season Heritage P&C responsibility ~$20MM out of surplus Description Probability % of Coverage Exhausted Worst Calendar Year 2004 Hurricane Season 1:188 years 13.1% After 2004 season, $2.7B of reinsurance limit remaining for the same hurricane season Heritage P&C responsibility ~$40MM out of surplus Debunking the myth: one storm or active hurricane season in Florida will blow through all of our reinsurance protection Sufficiency of our reinsurance program is tested in the AIR US Hurricane Model (Touchstone v3.0) Testing includes replication of the worst individual storms & calendar years of multiple events within Florida Modeled results show ability to withstand worst catastrophic events Source: Willis Towers Watson 11
Strong Balance Sheet Best-In-Class Capital Structures Well capitalized with $276MM in surplus ($200MM HPCI, $76MM Zephyr) 100% equity capital financed, no reliance on quota share agreements to support underwriting (all reinsurance bought on excess of loss basis) Low risk investment portfolio: minimum weighted average credit quality of A Conservative capital structure to promote sustainability and growth ($MM) $500 $400 $300 $32.4 million in dividends paid & share repurchases $200 $100 $0 FY12 FY13 FY14 FY15 FY16 Statutory Surplus Equity Capital Return 12
Financial Results & Overview 13
Large Installed Base Actively Writing Policies in Florida, Hawaii, North Carolina, South Carolina & Georgia Policies-in-Force (000s) 323 257 209 128 2013 2014 2015 2016 14
Top-Line Execution Track Record of Premium Growth Drivers of top-line include rate increases, M&A and continued ramp of new states Gross Premiums Earned $(MM) $641 $525 $312 $140 2013 2014 2015 2016 15
History of Above Market Returns Long Term Double-Digit Return on Average Equity (ROAE 1 ) Anticipated Return on Average Equity 45.0% 26.5% 30.2% Mean ROAE 27.8% 9.5% 2013 2014 2015 2016* *Unprecedented tornadic activity in 1Q16 and Hurricane Hermine and Hurricane Matthew in 2H16 1 ROAE = Net Income / (Beginning stockholders equity + ending stockholders equity / 2) 16
Voluntary Policy Growth Continues Consolidated Personal Inforce Premium $(000s) 200,000 160,000 120,000 80,000 +75% y/y Inforce Voluntary Personal Residential Lines Voluntary inforce premium of $174MM as of 12/31/16, +75% compared to 12/31/15 150K voluntary policies-in-force (PIF) now make up 47% of total personal residential PIF 40,000 0 2013 2014 2015 2016 Business ramp continues in new states with North Carolina leading the expansion Consolidated Commercial Inforce Premium $(000s) 80,000 60,000 40,000 20,000 +57% y/y Voluntary Commercial Residential Lines Inforce premium of $75MM as of 12/31/16, +57% compared to 12/31/15 Commercial offers attractive business mix given low attritional loss ratios and lower propensity of AOB 0 2014 2015 2016 17
Capturing Share in Commercial Residential Total Inforce Written Premium (9/30/14) Total Inforce Written Premium (12/31/16) $(MM) $(MM) American Capital Assurance Co. $86.1 $71.0 $65.6 $8.4 $8.4 $6.2 $4.5 $3.5 $311.9 $403.3 American Capital Assurance Co. $118.6 $94.8 $60.6 $57.6 $26.9 $23.6 $15.7 $13.6 $7.9 $249.8 Heritage has proactively focused on growing commercial residential given business mix and diversification benefits: Premium Source: Florida Office of Insurance Regulation Lower attritional loss ratios relative to personal residential Very little risk as it relates to fraud and AOB issues in commercial residential Higher premiums & profitability associated with commercial residential policies Properties are well-maintained and mostly managed by condo associations 18
2016: Footprint & Business Line Expansion; Addressing Environment in Florida Exited 2016 haven proven the business model: two hurricanes, record tornadic activity and AOB & litigated claims 2016 Results & Actions 30% increase in policy count year over year $34 million in net income 9.5% return on average equity Repurchased $25.6 million in shares outstanding; paid out $6.8 million in dividends Expanded in Hawaii with the Zephyr acquisition and began writing residential policies in the Carolinas Passed through rate increase and policy language changes in response to environment in Florida Ceased writing new policies in fraudulent heavy areas Supported policyholders after the hurricanes and closed >90% of claims Rapid response times & restoration of homes with Heritage s unique vertical claims model 19
2017: Focus on Bottom-Line Results Business & Financial Drivers Voluntary personal & commercial residential lines expansion New state expansion through M&A, strategic partnerships & organic growth Ability to adjust rate commensurate with increased risk Market share growth driven by operational & financial expertise Shareholder Return Business model can support long-term substantial ROAE Future capital deployment based on best return for shareholders Balance strategic growth & expansion initiatives with capital return 2017: Focus on Bottom-Line Results Evaluate opportunities to expand footprint & diversify risk Drive profitable new business through underwriting discipline & strategic initiatives Achieve optimal reinsurance program for 2017-2018 which includes 5 th ILS multi-year bond Continue to differentiate our service level for policyholders and drive down costs with vertical claims model 20