Executive Summary

Q3 showed continued underwriting improvement but a larger net loss: total revenues $167.4M, diluted EPS of -$0.59, combined ratio 112.5% (down 10.2 pts YoY), driven by lower loss and expense ratios but significant weather losses persisted .
Management emphasized rate adequacy and underwriting optimization: premiums-in-force up 13.3% YoY while policies-in-force rose 3.0%, with Florida premiums-in-force up 7.5% and policies-in-force down 5.4%, evidencing rate-driven mix shift .
Reinsurance program strengthened earlier in 2021 (prepaid reinstatements, eliminated co-participations); Q2 had a $9.4M reinstatement premium that lifted ceded and combined ratios, but Q3 ceded premium ratio fell to 44.8% from 48.7% in Q2 .
No formal guidance was issued; management expects premiums to increase in 2022 on continued mid-to-high single-digit rate actions (double digits in several jurisdictions) and underwriting measures; capital position is adequate with $26M non-regulated cash and opportunistic buybacks evaluated .

What Went Well and What Went Wrong

What Went Well

Underwriting ratios improved YoY: loss ratio 79.8% (-6.8 pts YoY), expense ratio 32.7% (-3.4 pts), combined ratio 112.5% (-10.2 pts), supported by rate adequacy and cost focus .
Premiums-in-force growth outpaced policies-in-force growth by ~10+ points, reflecting pricing-led margin expansion; Florida PIF up 7.5% with PIF counts down, consistent with exposure management .
Reinsurance program enhancements (prepaid reinstatements, fewer co-participations) increased resilience going into hurricane season; Q3 ceded premium ratio improved vs Q2 .

Key management quote: “Excluding realized capital gains, pretax income improved by about $10 million year over year, driven by a ten point improvement in the net combined ratio, including almost seven points of net loss ratio improvement” .

What Went Wrong

Net loss of $16.4M amid elevated weather activity; net accident-quarter weather losses $51.4M (cat $16.0M, other weather $35.5M) and realized gains absent vs $20.4M in 3Q20 .
Book value per share fell to $14.57 (-4.1% QoQ, -8.8% YoY), reflecting losses and market impacts .
Reinsurance costs remain a headwind (high ceded ratio structurally; Q2 reinstatement premium added 6.3 pts to combined ratio), despite improvement in Q3 .

Financial Results

Metric	Q1 2021	Q2 2021	Q3 2021
Total Revenues ($USD Millions)	$147.243	$150.197	$167.408
Net (Loss) Income ($USD Millions)	$(5.148)	$(3.950)	$(16.410)
Diluted EPS ($USD)	$(0.19)	$(0.14)	$(0.59)

Underwriting & Ratios	Q1 2021	Q2 2021	Q3 2021
Gross Premiums Written ($USD Millions)	$274.181	$337.700	$274.178
Gross Premiums Earned ($USD Millions)	$270.411	$285.646	$294.409
Ceded Premiums ($USD Millions)	$(128.212)	$(139.147)	$(131.964)
Net Premiums Earned ($USD Millions)	$142.199	$146.499	$162.445
Ceded Premium Ratio (%)	47.4%	48.7%	44.8%
Loss Ratio (%)	68.9%	68.8%	79.8%
Expense Ratio (%)	38.8%	36.4%	32.7%
Combined Ratio (%)	107.7%	105.2%	112.5%

Weather Losses Detail	Q1 2021	Q2 2021	Q3 2021
Net Accident Quarter Weather Losses ($USD Millions)	$31.4	$35.5	$51.4
– Catastrophe ($USD Millions)	$15.4	$24.5	$16.0
– Other Weather ($USD Millions)	$16.1	$11.0	$35.5

KPIs	Q1 2021	Q2 2021	Q3 2021
Premiums-in-Force ($USD Billions)	$1.1B	$1.2B	$1.2B
Policies-in-Force (Units)	N/A	593,786	N/A
Book Value Per Share ($USD)	$15.32	$15.20	$14.57
Share Repurchases (Shares / $USD Millions)	N/A	N/A	148,109 / $1.0M
Quarterly Dividend ($USD per share)	$0.06	$0.06	$0.06

Geographic Growth (Gross Premiums Written YoY)	Q1 2021	Q2 2021	Q3 2021
Florida	+17.7%	+12.8%	-12.4% (exposure mgmt reduction)
Other States	+21.9%	+20.3%	+8.0%

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Premiums	FY 2022	Not provided	Management expects premiums “up next year” as rate actions earn through; continued rate taking in 2022 .	Qualitative update (raised outlook)
Rate Increases	FY 2022	Not provided	Mid-to-high single digits in most jurisdictions; double digits in several .	Initiated detail
Underwriting Actions	Ongoing	Not provided	Curtailing new/renewals in targeted areas; min Coverage A, zip shutdowns, agency changes, min roof age .	Expanded
Capital Return	Ongoing	Not provided	~$26M non-regulated cash; modest buybacks in Q3; future repurchases evaluated .	Initiated consideration
Geographic Exposure	Ongoing	Not provided	No plans to expand to Texas/Louisiana; focus on Carolinas and North .	Maintained discipline

Note: No formal quantitative guidance ranges were issued; commentary is qualitative.

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2)	Current Period (Q3)	Trend
Rate adequacy & underwriting optimization	Q1/Q2: Aggressively raising rates; underwriting actions; early benefits expected to show through 2H21 and into 2022 .	CEO/CFO reiterate rate-driven margin expansion with PIF growth > PIF count; improved attritional loss ratio; continued rate earning in 2022 .	Improving (rate and attritional loss metrics)
Reinsurance program & costs	Renewed core excess-of-loss; prepaid reinstatements; eliminated co-participations; Q2 reinstatement premium added 6.3 pts to combined ratio .	Q3 ceded premium ratio fell to 44.8%; program in place with prepaid reinstatements/fewer moving parts .	Improving (structurally), cost headwinds moderating QoQ
Weather losses & social inflation	Elevated non-cat severity; COVID-related materials inflation impacting claims; severity > frequency .	Net weather losses higher YoY; management baking losses and social inflation into rate indications .	Mixed (weather elevated; pricing response underway)
Florida regulatory reform (SB 76)	Cautiously optimistic but too early to tell; seek further legislative assistance .	Slight decrease in new litigation observed; still cautious .	Potentially improving, early signs
Capital & buybacks	Debt refinanced in Q2; increased revolver; focus on profitability over growth .	~$26M non-regulated cash; minor Q3 buybacks; ongoing evaluation .	Stable/constructive
Competitive landscape & geography	Slowing growth by design; selective new business outside FL; adequate pricing across markets .	No increase in competitors post Gulf storms; maintaining exposures, focusing Carolinas/North .	Stable

Management Commentary

CEO: “While we were disappointed with the loss in the quarter, I'm encouraged by underlying signs of improvement that I expect will continue next quarter and throughout 2022… premiums in-force were up thirteen percent, while policies in-force were only up by three percent” .
CFO: “Net accident quarter weather losses of $51.4 million are $4.1 million higher than the same quarter in 2020… we are seeing favorable trends that we believe will lead to continued improvements… lower attritional loss ratio and expense ratio are indicators” .
CEO (press release): “Year-over-year premiums-in-force growth significantly outpaced policies-in-force growth” .
CEO on inflation: “We increased our inflation guard factor… Southeast to 8%, North Carolina 6%, Northeast 4%… plus contemplated rate increases” .

Q&A Highlights

Rate trajectory: “Mid to high single digit in most jurisdictions… several in the double digits” .
Partner distribution: National partnerships represent ~25% of portfolio; ongoing refinement based on profitability .
Capital & buybacks: ~$26M non-regulated cash; minor Q3 repurchases; future buybacks evaluated .
Inflation/claims severity: Increased inflation guard factors; severity the key driver vs frequency .
Geographic strategy/competition: No Gulf expansion planned; focus on Carolinas/North; not seeing more competitors entering markets post-storms .

Estimates Context

Wall Street consensus estimates for Q3 2021 EPS and revenue were not available via S&P Global at the time of request (request limit exceeded). As a result, we cannot assess beat/miss versus consensus for Q3 or prior quarters at this time.

Key Takeaways for Investors

Pricing-driven margin recovery is visible: combined ratio improved 10.2 pts YoY with attritional loss and expense ratios lower; continued rate earning through 2022 should further support margins .
Weather remains the swing factor: Q3 net weather losses $51.4M with non-cat weather elevated; management is embedding heightened loss trends and social inflation into rate filings .
Reinsurance positioning improved vs 2020: prepaid reinstatements and simplified tower; ceded premium ratio declined to 44.8% in Q3 from Q2’s 48.7% impacted by reinstatement premium .
Book value pressure and capital return: BVPS fell to $14.57; modest buybacks executed, with ~$26M non-regulated cash offering optionality; dividend maintained at $0.06 per share .
Florida litigation reform is a potential tailwind: early signs of reduced new litigation; further legislative efforts expected; watch Q4/Q1 updates for measurable impact .
Geographic and underwriting discipline: exposure trimmed in Florida, growth focused in Carolinas/Northeast; underwriting actions (coverage minimums, zip shutdowns, roof age) should improve risk quality .
Near-term trading: absent consensus context, narrative turns on weather normalization and evidence of rate-earned margin expansion; sequential improvements in ceded ratio and expense ratio support constructive bias if weather moderates .

Heritage Insurance Holdings, Inc. (HRTG)·Q3 2021 Earnings Summary