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Heritage Insurance Authorizes Another Stock Repurchase Plan After Downgrade, Losses

By | January 18, 2023

The board of directors for Tampa-based Heritage Insurance Holdings has authorized the repurchase of $10 million in shares from stockholders, marking the second buy-back plan in recent months.

The super-regional company (HRTG on the New York Stock Exchange), made the announcement in a news release Tuesday. It did not explain the reason for the repurchase, and company officials could not be reached for comment. Company stock repurchases typically are done to add value and boost share prices, to reduce the cost of capital or to make companies appear to be more financially viable, according to Forbes Advisor and Investopedia.

Buying back stock can increase the demand and raise the share price, said Mike Houston, the chief strategy officer for Lambert, a public relations and investor relations firm for Heritage. He said the repurchase should not be seen as an indicator of trouble for Heritage insurance companies.

“Typically, when a company announces a capital reallocation plan, it’s typically a good sign, that they do have the capital to go out an buy shares,” Houston said. “As opposed to being in a position where you don’t have the capital to do that.”

The buy-back began at the end of December, when a previously authorized $25 million repurchase plan expired, Heritage said.

The move comes a month after the KBRA financial rating firm downgraded the outlook for Heritage Insurance Holdings from stable to negative, citing an elevated debt-to-capital ratio, continued operating losses and “a significant equity decline,” KBRA said.

The holding company includes Heritage Property & Casualty Insurance Co., Narragansett Bay Insurance Co. and Zephyr Insurance Co. KBRA last month affirmed its financial strength rating for Heritage Property & Casualty at “BBB+;” an “A-” rating for Narragansett; and a “BBB+” rating for Zephyr. The Demotech rating firm, which grades the majority of Florida-domiciled property insurers, currently lists all three of those carriers as having a financial stability rating of “A.”

In November, Heritage Insurance Holdings reported a third quarter net loss of more than $48 million, which followed an $88 million loss for Q2. Heritage also has reported more than $40 million in losses from Hurricane Ian, which caused heavy damage across Florida in September and October.

The negative numbers have led to renewed speculation that Heritage could be in serious financial trouble. As recently as 2021, Heritage Property & Casualty was considered to be the sixth-largest insurers in Florida, with a 3.25% share of the market and more than $400 million in direct written premium, according to the AM Best rating and analysis firm.

But since then, the company has shed a significant number of policies in Florida.

The Florida Office of Insurance Regulation this month also added to the speculation when it posted its Property Insurance Stability Report. The report noted that six carriers had been marked for enhanced monitoring by the office and one of those carriers had been referred to the office “multiple times for different reasons.”

The OIR last year also subjected insurers to a catastrophe stress test, based on three historically powerful hurricane scenarios.

“Based on the results of the CST scenarios, only one insurer was projected to fall below the minimum surplus requirement,” the OIR report said.

It did not name the company, but added that the insurer’s parent company had pledged to infuse more capital “should the insurer’s surplus fall below the minimum surplus requirement following an event.”

As of Wednesday morning, HRTG stock was trading at $2.29 a share, up slightly for the month but down from a high of $7.28 in March 2022, according to Yahoo! Finance.

Topics Profit Loss

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