What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2024-03-13 compared with 2023-03-13 · 243 added, 232 removed, 584 unchanged (45% of the section changed)

Heritage Insurance Holdings, Inc.

(“we”, “our”, “us”, “Heritage”

and the “Company”) is a super-regional property and casualty insurance holding company that primarily provides personal and commercial residential insurance through our insurance company subsidiaries.

(“we”, “our”, “us”, “Heritage” and the “Company”) is a super-regional property and casualty insurance holding company that primarily provides personal and commercial residential insurance through our insurance company subsidiaries.

We are vertically integrated and control or manage substantially all aspects of insurance underwriting, customer service, actuarial analysis, distribution and claims processing and adjusting.

1 unchanged sentence

Our insurance subsidiaries include:

Heritage Property & Casualty Insurance Company (“Heritage P&C”), which provides personal and commercial residential property insurance and commercial general liability insurance;

Narragansett Bay Insurance Company (“NBIC”), which provides personal and commercial residential property insurance;

Zephyr Insurance Company (“Zephyr”), which provides personal residential and wind-only property insurance in Hawaii.

• Heritage Property & Casualty Insurance Company (“Heritage P&C”), which provides personal and commercial residential property insurance and commercial general liability insurance;

• Narragansett Bay Insurance Company (“NBIC”), which provides personal and commercial residential property insurance;

• Zephyr Insurance Company (“Zephyr”), which provides personal residential and wind-only property insurance in Hawaii.

Our financial strength ratings are important in establishing our competitive position and can significantly impact our ability to write policies.

We are rated by both Demotech, Inc.

(“Demotech”) and Kroll Bond Rating Agency (“KBRA”).

Demotech, a rating agency specializing in evaluating the financial stability of insurers, maintains a letter-scale financial stability rating system (“FSR”) from A’’

(A double prime) to L (licensed by insurance regulatory authorities).

KBRA’s ratings assigned to insurance companies ranges from AAA (extremely strong operations to no risk) to R (operating under regulatory supervision).

Demotech and KBRA have assigned the following insurance financial strength ratings (“IFSR”) to our key operating subsidiaries.

Additionally, KBRA has assigned an investment grade issuer rating to Heritage Insurance Holdings, Inc.

The KBRA outlook for Heritage P&C and Zephyr is stable and the KBRA outlook for Heritage Insurance Holdings, Inc.

and NBIC is negative.

(“Demotech”) and Kroll Bond Rating Agency (“KBRA”).

Demotech, a rating agency specializing in evaluating the financial stability of insurers, maintains a letter-scale financial stability rating system (“FSR”) from A’’ (A double prime) to L (licensed by insurance regulatory authorities).

KBRA’s ratings assigned to insurance companies range from AAA (extremely strong operations to no risk) to R (operating under regulatory supervision).

Demotech and KBRA have assigned the following insurance financial strength ratings (“IFSR”) to the Company and our key operating subsidiaries.

KBRA Investment Rating

Heritage Insurance Holdings

The KBRA outlook for Heritage P&C and NBIC is stable and the KBRA outlook for Heritage Insurance Holdings, Inc.

and Zephyr is negative.

We also provide insurance and insurance-related services through the following operating subsidiaries:

• Osprey Re Ltd.

(“Osprey”), our captive reinsurance subsidiary that may provide a portion of the reinsurance protection purchased by our insurance company subsidiaries;

• Heritage MGA, LLC, our managing general agent;

• NBIC Service Company, which provides services to NBIC;

Contractors’

Alliance Network, LLC (“CAN”), our vendor network manager for claims and provider of restoration, emergency and recovery services;

• Contractors’ Alliance Network, LLC (“CAN”), our vendor network manager for claims and provider of restoration, emergency and recovery services;

• Skye Lane Properties, LLC, our property management subsidiary.

5 unchanged sentences

As of December 31, 2023, we had 436,656 personal residential policies in force, representing $1.1 billion of annualized premium, 2,838 commercial residential policies in force, representing $253.4 million of annualized premium, and 11,181 commercial general liability policies in force, representing $11.0 million of annualized premium, for a total of 450,675 policies and $1.4 billion of annualized premium.

For the year ended December 31, 2022, we had gross premiums written of $1.3 billion and an operating loss of $157.4 million.

The operating loss for the year ended December 31, 2022 included a non-cash, mostly non-deductible goodwill impairment charge of $92.0 million.

At December 31, 2022, we had total assets of $2.4 billion and total stockholders’

equity of $131.0 million.

Our overall short-term strategy has shifted from growing premiums to rebalancing our portfolio of over $1 billion in gross written premium to optimize our portfolio toward products and geographies that maximize long term returns to our shareholders, while mitigating risk from a single or series of catastrophic weather events.

We intend to improve underwriting results by undertaking the following:

For the year ended December 31, 2023, we had gross premiums written of $1.3 billion and operating income of $63.2 million.

At December 31, 2023, we had total assets of $2.2 billion and total stockholders’ equity of $220.3 million.

Our overall strategy continues to focus on optimizing our portfolio of over $1.0 billion in gross premiums written toward products and geographies that maximize long term returns to our shareholders, while mitigating risk from a single or series of catastrophic weather events.

We intend to continue to improve underwriting results by undertaking the following:

Improve the Profitability of our Portfolio

2 unchanged sentences

Given our coastal exposure, which includes exposure to hurricanes and other severe weather events, our reinsurance program provides meaningful balance sheet protection and reduces earnings volatility.

We continue to take underwriting and rate actions to improve the profitability of our business and continuously monitor our portfolio to manage the risk of wind and other perils.

We continue to take underwriting and rate actions to improve the profitability of our business and continuously monitor our portfolio to manage the risk of wind and other perils as well as the cost of our reinsurance program.

Optimize Our Reinsurance Program

We continue to strategically evaluate our reinsurance program to obtain what we believe to be the most appropriate levels and sources of reinsurance, and we trade with high quality reinsurers who are either rated or who collateralize our risk transfer.

Our reinsurance program includes excess of loss, quota share, per risk and facultative coverage.

1 unchanged sentence

We continue to evaluate cost-efficient alternatives to traditional reinsurance, such as the issuance of catastrophe bonds by Citrus Re Ltd.

(“Citrus Re”), a Bermuda special purpose insurer.

In addition, each year we evaluate whether to meet a portion of our reinsurance needs through the use of our reinsurance subsidiary, Osprey, which helps to manage our reinsurance expense and reduces our reliance on third-party reinsurance.

8 unchanged sentences

As described in our competitive strengths below, we believe that continuing to expand and cultivate our relationships with large independent agencies and other stakeholders will foster a higher quality book of business.

We have also established relationships with auto insurance carriers who package their auto product with our residential property insurance product to provide diversification opportunities.

We also have established relationships with auto insurance carriers who package their auto product with our residential property insurance product to provide diversification opportunities.

Develop IT Solutions to More Effectively Service our Customers

We continuously work to enhance our technology resources in order to better serve our agents and policyholders, streamline our processes and improve efficiency.

We have made it a priority to transition each of our insurance companies to the same policy and claims system, which provides efficiencies for our personnel as well as our agency networks.

We have made it a priority to use consistent policy and claims systems for our insurance company affiliates, which provides efficiencies for our personnel as well as our agency networks.

We completed a transition to a new claims system used by each of our insurance company subsidiaries during 2023 and are transitioning to a new policy and billing system which is expected to be completed by 2025.

Privacy and Cybersecurity Regulations and Oversight

We are subject to numerous federal and state insurance regulations that impose significant requirements and standards for protecting personally identified information of insurance company policyholders, employee and other individuals.

Federal Regulation

The federal Gramm-Leach-Bliley Act ("GBLA") requires financial institutions, including insurers, to protect the privacy of non-public information, to restrict use of such information and disclosure to non-affiliated third parties, and to provide notices to customers regarding use of their non-public personal information and an opportunity to “opt out” of certain disclosures.

State departments of insurance and certain federal agencies adopted implementing regulations as required by federal law.

In addition, SEC rules require disclosure regarding cybersecurity oversight and incidents.

State Laws and Regulations

For the past few years, state insurance regulators have focused increasing attention on cybersecurity.

As an example, insurance companies are required to maintain a cybersecurity program, incident response plan and information technology system safeguards that protect customer information under extensive cybersecurity regulations implemented by the NY Department of Financial Services and statutes adopted by a number of states based on a model data security law adopted by the National Association of Insurance Commissioners (“NAIC”).

In addition, state insurance regulators focus significant attention on data security during financial exams, and the NAIC has strengthened and enhanced the cybersecurity guidance included in its handbook for state insurance examiners.

Additional state laws outside of the insurance industry impose notification requirements in the event of cybersecurity breaches affecting their residents.

On the privacy front, we anticipate continued focus on new regulatory and legislative proposals at the state and federal levels that may further regulate practices regarding privacy and security of personal information.

However, we note that in many instances we will be exempt from comprehensive state privacy laws as a financial institution regulated under the GBLA.

We continue to assess the applicability of this exemption to the Company in light of our operations so as to stay vigilant of new compliance requirements under applicable privacy laws.

Our Competitive Strengths

4 unchanged sentences

Strong, Conservative Capital Structure

As of December 31, 2022, we had stockholders’

equity of $131.0 million and Heritage P&C, NBIC and Zephyr, had policyholder surplus, as defined by statutory accounting principles, of $106.7 million, $89.6 million and $80.0 million, respectively.

The surplus for each of our insurance subsidiaries is well in excess of the minimum capital levels required by our insurance regulators and Demotech.

As of December 31, 2023, we had stockholders’ equity of $220.3 million and Heritage P&C, NBIC and Zephyr, had policyholder surplus, as defined by statutory accounting principles, of $143.5 million, $72.3 million and $35.8 million, respectively.

The surplus for each of our insurance subsidiaries is in excess of the minimum capital levels required by our insurance regulators and our ratings agencies.

Selective Underwriting and Policy Acquisition Criteria

We believe our proprietary data analytics capabilities and underwriting processes allow us to make better risk selections leading to profitability and high levels of policy retention.

Our data analytics are embedded in the underwriting process and are used for strategic expansion into new product lines and states.

Our data analytics are embedded in the underwriting process and are used for new and existing business as well as strategic expansion into new product lines and states.

Unique Claims Servicing Model and Superior Customer Service

4 unchanged sentences

We manage our exposure to catastrophic events through, among other things, the purchase of reinsurance.

Our relationships with highly rated reinsurers have been developed as a result of our management team’s industry experience and our reputation for selective underwriting and effective claims management.

Our financial strength, underwriting results and the long-term relationships between our management team and our reinsurance partners help improve the cost-effectiveness of our reinsurance program.

5 unchanged sentences

The Products and Distribution section below describes the breadth of our agency network.

The advancement of the environmental, social and governance (“ESG”) framework is intended to promote awareness, sustainable and inclusive development of insurance markets which has been an area of focus for standard setters and regulatory agencies at the state and federal level.

We continue to progress in integrating ESG strategies into our business and operations.

Specifically:

Environment - we are currently focused on becoming more energy efficient, mitigating and adapting to climate change, conserving water and reducing waste.

Social –

we have put emphasis on creating an inclusive equal opportunity workplace and inspiring employees to support community relations.

Governance –

we are committed in our pursuit to create an ethical and transparent organization.

• Environment - we seek to operate our own facilities in a more intelligent, environmentally-friendly manner.

We are focused on becoming more energy efficient, mitigating and adapting to climate change, conserving water and reducing waste.

• Social – we have put emphasis on creating an inclusive equal opportunity workplace and inspiring employees to support community relations.

Our goals are to ensure that all employees feel valued, respected and accepted for their contributions regardless of their race, sex, religion, ethnicity, age, gender identity, disabilities, national origin, sexual orientation, or other unique characteristics.

• Governance – we are committed in our pursuit to create an ethical and transparent organization.

We continue to enhance our ESG policies as we assess, analyze and identify critical topics.

2 unchanged sentences

The market for residential property insurance is highly competitive in the states in which we conduct business.

We primarily compete against single state or regional carriers, but also compete to varying degrees against large national carriers and state-sponsored homeowners’

insurance entities.

We compete for business on the basis of price, financial strength, types of coverages

offered, availability of coverage desired by customers, commission structure and quality of service.

We believe Heritage differentiates itself from many competitors with our service levels, financial resources, including a robust reinsurance program, streamlined processes, and vertical integration of loss mitigation and repair services.

We've consistently ranked in the top 25 writers of homeowners’

insurance business nationwide.

We primarily compete against single state or regional carriers, but also compete to varying degrees against large national carriers and state-sponsored homeowners’ insurance entities.

We compete for business on the basis of price, financial strength, types of coverages offered, availability of coverage desired by customers, commission structure and quality of service.

We've consistently ranked in the top 25 writers of homeowners’ insurance business nationwide.

Our market share by state varies depending upon our premium volume and that of competing property insurance writers in those states.

Products and Distribution

Heritage P&C writes voluntary personal residential insurance policies through a network of more than 2,000 independent agents in the states in which it is licensed.

Heritage P&C writes personal residential insurance policies through a network of more than 2,000 independent agents in the states in which it is licensed.

Approximately 22.0% of our voluntary personal lines policies are written by agents that are affiliated with eight large agency networks with which we have entered into master agency agreements.

We market and write commercial residential policies through a network of approximately 400 independent agents in Florida.

NBIC writes personal lines policies through a network of retail independent agents, wholesale agents and a partnership with a large direct agency.

NBIC writes personal residential insurance policies through a network of retail independent agents, wholesale agents and a partnership with a large direct agency.

We maintain master agency agreements with approximately 500 retail independent agents, representing over 800 agency locations, including several large agency networks.

We also distribute indirectly to over 1,500 retail locations through eight wholesale agency relationships.

Our three largest independent agency relationships represent 15.6% of annualized premiums.

Our three largest independent agency relationships represent approximately 16.0% of annualized premiums.

Additionally, we have expanded our product offering to include commercial residential products in New Jersey and New York.

Zephyr writes personal and commercial insurance policies through a network of approximately 70 independent agencies in Hawaii.

Zephyr writes personal residential insurance policies through a network of approximately 70 independent agencies in Hawaii.

Approximately 50.6% of our premium is written by agents that are affiliated with three large agency networks with which we have entered into master agency agreements.

The following charts depict the geographic distribution of our in-force premium as of December 31, 2023 and 2022, respectively.

Our Florida personal lines in-force premium has declined as part of our strategy to re-allocate capital to products and geographies that maximize long-term returns.

* * Other includes CA, DE, GA, MD, MS and VA

Our in-force premium for Florida commercial residential business has increased, while in-force premium for personal lines has declined as part of our strategy to re-allocate capital to products and geographies that maximize long-term returns.

* * Other includes AL, CA, DE, GA, MD, MS and VA

CGL = commercial general liability

CRES = commercial residential insurance

PRES = personal residential insurance

Our management establishes underwriting criteria for policies we accept.

For consistency, efficiency, and compliance with our underwriting standards, our underwriting process is generally automated with our predetermined criteria programmed into our policy system.

For consistency, efficiency, and compliance with our underwriting standards, our underwriting process is generally automated with predetermined criteria programmed into our policy system.

Certain policies have characteristics which require an independent review by our underwriters.

3 unchanged sentences

The underwriting team includes actuarial staff, underwriters, our risk management team, and product development personnel.

Our underwriting team leverages our proprietary data analytics, which include

a number of automated processes, to analyze a number of risk evaluation factors, including the age, construction, location and value of the residence, premiums to be received from insuring the residence, geographic concentrations of policies and the cost of reinsurance.

Our underwriting team leverages our proprietary data analytics, which include a number of automated processes, to analyze a number of risk evaluation factors, including the age, construction, location and value of the residence, premiums to be received from insuring the residence, geographic concentrations of policies and the cost of reinsurance.

The underwriting criteria that we consider continues to evolve with our business and strategy.

13 unchanged sentences

Loss and Loss Adjustment Expense Reserves

Our liability for losses and loss adjustment expenses represents our estimated ultimate liability of (i) claims that have been incurred and reported, but not yet paid (case reserves), (ii) claims that have been incurred but not yet reported to us (“IBNR”), and (iii) loss adjustment expenses (“LAE”) which are intended to cover the cost of settling claims, including investigation and defense of lawsuits resulting from such claims.

Considerable time can pass between the occurrence of an insured loss, the reporting of the loss, and the payment of that loss.

1 unchanged sentence

We continually review and adjust our estimated losses as necessary based on industry development trends, evolving claims experience and new information obtained.

For a discussion and summary of the activity in the liability for losses and LAE for the years ended December 31, 2022, 2021 and 2020, Refer to Note 13 “

Reserve for Unpaid Losses ”

to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K.

For a discussion and summary of the activity in the liability for losses and LAE for the years ended December 31, 2023, 2022 and 2021, Refer to Note 13 “ Reserve for Unpaid Losses ” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K.

Technology has become an integral part of our organization and makes us more efficient, cost-effective and customer-centric.

10 unchanged sentences

Purchasing reinsurance is an important part of our risk strategy, and premiums ceded to reinsurers is one of our largest costs.

Reinsurance involves transferring, or “ceding”, a portion of the risk exposure on policies we write to another insurer, known as a reinsurer.

To the extent that our reinsurers are unable to meet the obligations they assume under our reinsurance agreements, we remain liable for the entire insured loss.

We have strong relationships with reinsurers, which we attribute to our management’s industry experience, disciplined underwriting, and claims management capabilities.

For each of the twelve months beginning June 1, 2023 and 2022, we purchased reinsurance from the following sources:

(i) the Florida Hurricane Catastrophe Fund, a state-mandated catastrophe fund (“FHCF”) for Florida admitted market policies only, (ii) private reinsurers, all of which were rated “A-”

or higher by A.M.

(i) the Florida Hurricane Catastrophe Fund, a state-mandated catastrophe fund (“FHCF”) for Florida admitted market policies only, (ii) private reinsurers, all of which were rated “A-” or higher by A.M.

Best Company, Inc.

(“A.M.

Best”) or Standard & Poor’s Financial Services LLC (“S&P”) or were fully collateralized, and (iii) our captive reinsurance subsidiary, Osprey.

We also sponsored catastrophe bonds in 2022 through Citrus Re.

Best”) or Standard & Poor’s Financial Services LLC (“S&P”) or were fully collateralized, and (iii) our captive reinsurance subsidiary, Osprey.

We also sponsored catastrophe bonds through Citrus Re.

In addition to purchasing excess of loss catastrophe reinsurance, we also purchased quota share, property per risk and facultative reinsurance.

Our quota share programs limit our exposure on catastrophe and non-catastrophe losses and provides ceding commission income.

Our quota share programs limit our exposure to catastrophe and non-catastrophe losses and provide ceding commission income.

Our per risk programs limit our net exposure in the event of a severe non-catastrophe loss impacting a single location or risk.

3 unchanged sentences

We generally amortize our catastrophe reinsurance premiums over the 12-month contract period beginning on June 1 on a straight-line basis.

Our quota share reinsurance is amortized over the 12-month contract period and may be purchased on a calendar or fiscal year basis.

Our quota share, per risk and facultative reinsurance is amortized over the 12-month contract period and may be purchased on a calendar or fiscal year basis.

Our insurance regulators require all insurance companies, like us, to have a certain amount of capital and reinsurance coverage in order to cover losses and loss adjustment expenses upon the occurrence of a catastrophic event.

Our reinsurance program provides reinsurance in excess of our state regulator requirements, which are based on the probable maximum loss that we would incur from an individual catastrophic event estimated to occur once in every 100 years based on our portfolio of insured risks.

The nature, severity and location of the event giving rise to such a probable maximum loss differs for each insurer depending on the insurer’s portfolio of insured risks, including, among other things, the geographic concentration of insured value within such portfolio.

As a result, a particular catastrophic event could be a one-in-100-year loss event for one insurance company while having a greater or lesser probability of occurrence for another insurance company.

4 unchanged sentences

In the fourth quarter of 2022 we re-estimated our ultimate losses for Hurricane Irma, which struck Florida in 2017.

As a result of that re-estimation, Heritage has exhausted the private layers of reinsurance specific to Hurricane Irma but has a 45% participation in the FHCF limit remaining.

Accordingly, should future re-estimations to Hurricane Irma losses increase the expected loss reserves, a portion of the increase will be retained and a portion will be ceded to the FHCF.

For the contract period ending May 31, 2023, our insurance company subsidiaries purchased catastrophe excess of loss reinsurance from the following sources:

(i) FHCF (i.e., Florida residential admitted market risks only), (ii) over 50 third-party private reinsurers, all of which were rated “A-”

or higher by A.M.

Best or S&P or which were fully collateralized, (iii) Osprey Re, our captive reinsurance subsidiary, and (iv) Citrus Re.

As a result of that re-estimation, Heritage exhausted the private layers of reinsurance specific to Hurricane Irma but had a 45% participation in the FHCF limit remaining.

As further described in Note 13 Reserve for Losses, the Company's 2017 reinsurance agreement with the FHCF was commuted during the third quarter of 2023.

This commutation process resulted in a final determination of and payment for known, unknown or unreported claims relating to Hurricane Irma.

The final amount paid by the FHCF could vary from the Company’s future estimation of losses to have been recovered from the FHCF.

Accordingly, should future re-estimations to Hurricane Irma losses increase the expected loss reserves, all of the increase will be retained.

For the contract period ending May 31, 2024, our insurance company subsidiaries purchased an aggregate of $2.9 billion of catastrophe excess of loss reinsurance from the following sources:

(i) FHCF (i.e., Florida residential admitted market risks only), (ii) over 30 third-party private reinsurers, all of which were rated “A-” or higher by A.M.

Best or S&P or which were fully collateralized, (iii) Osprey, our captive reinsurance subsidiary, and (iv) Citrus Re, a Bermuda special purpose insurer formed in 2014 (“Citrus Re”).

For the 2023 hurricane season, we also obtained reinsurance from the Florida State Board of Administration's Reinsurance to assist Policyholders ("RAP") program which provide reinsurance for Florida admitted policies only.

The RAP component of our reinsurance program was provided at no cost to the Company and is a non-recurring reinsurance program.

There is no single reinsurer representing more than 10% of the limit purchased for our program other than the FHCF.

2 unchanged sentences

To the extent a reinsurer is not rated, the reinsurance program is fully collateralized.

Refer to Note 12 “Reinsurance”

to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K.

Manager / Reinsurers

Aeolus Re Ltd.

Refer to Note 12 “Reinsurance” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K.

Aeolus Re Ltd./Keystone PF Segregated Account

Collateralized

Aeolus Re Ltd./Keystone PF Segregated Account

Collateralized

Allianz Risk Transfer AG (Bermuda Branch)

Allianz Risk Transfer AG (Bermuda Branch) (obo PIMCO)

Allied World Assurance Company, Ltd

American Agricultural Insurance Company

Arch Reinsurance Limited

Arch Reinsurance Limited (obo Quantedge Capital USA Inc)

Arch Reinsurance Limited (obo Securis ILS Management Ltd)

Ariel Re Bda Limited/Lloyd's Syndicate 1910

Ariel Re Bda Limited/Lloyd's Syndicate 1969

Ascot Bermuda Limited

Aspen American Insurance Company

Aspen Bermuda Limited

AXIS Specialty Limited

Berkley Insurance Company

BGS Services (Bermuda) Limited/Lloyd's Syndicate 2987

Chaucer Insurance Company DAC (Bermuda)

Chubb Tempest Reinsurance Ltd.

Conduit Reinsurance Limited

Shaw Re (Bermuda) Ltd., Bermuda

5 unchanged sentences

Collateralized

Endurance Specialty Insurance Ltd.

Everest Reinsurance Company

Fidelis Insurance Bermuda Limited

Fidelis Underwriting Limited

Fubon Insurance Co., Ltd.

General Insurance Corporation of India

Hannover Re (Bermuda), Ltd.

Hannover Rueck SE (obo Chard Re)

Hannover Rueck SE (obo Eskatos Capital Management)

Hannover Rueck SE (obo Pillar Capital Management)

Hannover Rueck SE (obo Securis)

Harco National Insurance Company

Hiscox Insurance Company (Bermuda) Limited

Houston Casualty Company (UK Branch)

Insurance Company of the West

Munich Reinsurance America, Inc.

Odyssey Reinsurance Company

Swiss Reinsurance America Corporation

Transatlantic Reinsurance Company

Validus Reinsurance, Ltd.

Conduit Reinsurance Limited

Hannover Rueck SE (obo Chard Re)

Hannover Rueck SE (obo Eskatos Capital Management)

Houston Casualty Company (UK Branch)

Lloyd's Syndicate 0033 (HIS)

Lloyd's Syndicate 0626 (IRK)

Lloyd's Syndicate 0727 (SAM)

Lloyd's Syndicate 1084 (CSL)

2 unchanged sentences

Lloyd's Syndicate 1729 (DUW)

Lloyd's Syndicate 1856 (IQU)

Lloyd's Syndicate 1947 (GIC)

Lloyd's Syndicate 0623 (AFB)

Lloyd's Syndicate 2791 (MAP)

Lloyd's Syndicate 2987 (BRT)

Lloyd's Syndicate 2623 (AFB)

Lloyd's Syndicate 4020 (ARK)

Lloyd's Syndicate 4444 (CNP)

Lloyd's Syndicate 5886 (WBC)

Munich Reinsurance America, Inc.

Nautical Management Ltd on behalf of Syndicate 2357

Nautical Management Ltd./Markel Bermuda Limited

Odyssey Reinsurance Company

Partner Reinsurance Company Limited (Marilla Distribution Platform)

Prospero Re Ltd.

collateralized

Renaissance Reinsurance Ltd.

Satec Srl/New Reinsurance Company Ltd.

SCOR Reinsurance Company

SiriusPoint America Insurance

SiriusPoint Bermuda Insurance Company Ltd.

Swiss Reinsurance America Corporation

Swiss Reinsurance America Corporation (Marilla Distribution Platform)

Taiping Reinsurance Company Limited

The Cincinnati Insurance Company

collateralized

Transatlantic Reinsurance Company

Validus Reinsurance, Ltd.

Vantage Risk Ltd.

XL Reinsurance America Inc.

Our investments are managed by third-party asset managers.

Our investments are managed by a third-party asset manager.

We have designed our investment policy to provide a balance between current yield, conservation of capital and the liquidity requirements of our operations.

7 unchanged sentences

Our investment policy, which may change from time to time, is approved by our Investment Committee and is reviewed on a regular basis in order to ensure that our investment policy evolves in response to changes in the financial markets.

Refer to Note 2 “

Investments ”

to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K.

Refer to Note 2 “ Investments ” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K.

As of December 31, 2023, we held $463.6 million in cash and cash equivalents and $569.4 million in investments, which were comprised of $560.7 million in fixed maturities, $1.7 million in common stock and $7.1 million in other invested assets.

Of the $560.7 million of fixed maturities, $26.3 million of U.S.

government agency securities were pledged to the Federal Home Loan Bank (“FHLB”) in connection with a FHLB loan to Heritage P&C.

Refer to Note 14 “

Long-Term Debt”

to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K.

government agency securities were pledged to the Federal Home Loan Bank (“FHLB”) in connection with a FHLB loan to Heritage P&C.

Refer to Note 14 “ Long-Term Debt” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K.

Seasonality of our Business

6 unchanged sentences

The insurance regulatory statutes and rules provide for regulation of virtually all aspects of the business of insurance companies.

The states in which we conduct business, like many states, have adopted several model laws and regulations as promulgated by the National Association of Insurance Commissioners (“NAIC”).

State statutes and administrative rules generally require each insurance company that is part of a holding company group to register with the department of insurance in its state of domicile and to furnish information concerning the operations of the companies within the holding company system which may materially affect the operations, management or financial condition of the insurers within the group.

1 unchanged sentence

In some instances, individual state insurance laws and regulations are even more stringent than those promulgated by the NAIC or other states.

We are subject to regulations administered by a department of insurance in each state in which we do business.

We are subject to regulations administered by a department of insurance in our states of domicile as well as in each state in which we conduct business.

These regulations relate to, among other things:

17 unchanged sentences

Various regulatory and legislative bodies have adopted or proposed new laws or regulations to address the cyclical nature of the insurance industry, catastrophic events and insurance capacity and pricing.

These regulations include (i) the creation of “market assistance plans”

under which insurers are induced to provide certain coverages, (ii) restrictions on the ability of insurers to rescind or otherwise cancel certain policies in mid-term or to non-renew policies at their scheduled expirations, (iii) advance notice requirements or limitations imposed for certain policy non-renewals, (iv) limitations upon increases or decreases in rates permitted to be charged, (v) expansion of governmental involvement in the insurance market and (vi) increased regulation of insurers’

policy administration and claims handling practices.

These regulations include (i) the creation of “market assistance plans” under which insurers are induced to provide certain coverages, (ii) restrictions on the ability of insurers to rescind or otherwise cancel certain policies in mid-term or to non-renew policies at their scheduled expirations, (iii) advance notice requirements or limitations imposed for certain policy non-renewals, (iv) limitations upon increases or decreases in rates permitted to be charged, (v) expansion of governmental involvement in the insurance market and (vi) increased regulation of insurers’ policy administration and claims handling practices.

Further, regulatory authorities have relatively broad discretion to impose fines, sanctions, and other penalties, and to deny or revoke licenses for various reasons, including the violation of regulations.

In some instances, we follow practices based on our interpretations of regulations or practices that we believe may be generally followed by the industry.

In some instances, we follow practices based on our interpretations of regulations or practices that we believe may be generally followed by the insurance industry.

These practices may turn out to be different from the interpretations of regulatory authorities.

2 unchanged sentences

The risk-based capital standards, based upon the Risk-Based Capital Model Act adopted by the NAIC, require our insurance subsidiaries to report the results of risk-based capital calculations to state regulators and the NAIC.

These risk-based capital standards provide for different levels of regulatory attention depending upon the ratio of an insurance company’s total adjusted capital, as calculated in accordance with NAIC guidelines, to its authorized control level risk-based capital.

Authorized control level risk-based capital is determined using the NAIC’s risk-based capital formula, which measures the minimum amount of capital that an insurance company needs to support its overall business operations.

The State of Florida Office of Insurance Regulation (“FLOIR”) imposed certain additional solvency related requirements as a condition of receiving a certificate of authority for our Florida insurance company subsidiary.

Finally, our insurance company affiliates are subject to state regulations or consent orders setting conditions related to various transactions, including intercompany transactions.

1 unchanged sentence

State regulators where we are and may become licensed and offer insurance products conduct periodic examinations of the affairs of insurance companies and require the filing of annual and other reports related to financial condition, holding company issues and other matters.

These regulatory authorities also conduct periodic examinations into insurers’

business practices.

These regulatory authorities also conduct periodic examinations into insurers’ business practices.

Additionally, we are subject to assessments levied by governmental and quasi-governmental entities from the states in which we conduct business.

Generally, other state regulators defer to the state insurance regulator in our state of domicile.

However, any state insurance regulator, in the states where we conduct business, has the discretion to conduct examinations to determine compliance with the applicable state insurance laws and regulations.

The subject of the examinations may include forms, disclosures, marketing, sales practices, claims processes, underwriting, and various other practices and procedures.

Upon the conclusion of the examination, the state regulators may make the examination reports publicly available.

Insurance Holding Company

The Company is also subject to the insurance holding company laws in the states of domicile of our insurance company affiliates.

As part of the insurance holding company laws, we are required to file certain information with state insurance regulators in Florida, Rhode Island, and Hawaii, who may require us to file information regarding capital structure, financials, operations, and ownership.

These state insurance regulators must approve any transactions between the Company and our affiliate entities.

Human Capital

Growth and Development

At December 31, 2023, we had 566 full-time and part-time employees.

We do not have collective bargaining agreements relating to any of our associates.

Our employees are our most valuable asset, and we are committed to building a workforce that supports each employee’s unique professional journey.

We believe having an inclusive work environment, which not only drives engagement but fosters innovation, is critical to driving growth.

Our business results depend in part on our ability to successfully manage our human capital resources, including attracting, identifying and retaining key talent.

We provide all employees a wide range of professional development experiences, both formal and informal.

Our formal offerings include leadership development experiences, vocational training, and a certification program.

Most training and courses are delivered virtually.

In 2023, we remained focused on employee development though training opportunities, including courses which provide insurance designations, and other employee engagement activities.

Our performance management and other processes are intended to align associate aspirations, interests, performance, and experiences with the talent needs that supports a healthy working environment for the success of our business.

Managers and associates conduct periodic check-in discussions to encourage continuous performance feedback and improvement.

These discussions also act to hold leaders accountable for creating an associate development culture.

We are committed to the health and safety of our employees, which is critical to our success.

2 unchanged sentences

We provide competitive compensation and benefits as well as a 401(k) plan with employee matching opportunities, healthcare and insurance benefits, health savings and flexible spending accounts, telemedicine, paid time off, family leave, employee assistance programs and free education, training and development programs.

We are committed to the wellness of our employees and our community and as part of that commitment we have volunteer programs to support our local community’s wellness which provides our employees paid time to volunteer to Heritage-sponsored volunteer opportunities.

We are committed to the wellness of our employees and our community and as part of that commitment we have volunteer programs to support our local community’s wellness which provides our employees paid time off to volunteer to Heritage-sponsored volunteer opportunities.

Available Information

We make available free of charge on our investor website, investors.heritagepci.com, all materials that we file electronically with the Securities and Exchange Commission (“SEC”), including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after electronically filing such materials with, or furnishing them to, the SEC.

During the period covered by this Form 10-K, we made all such materials available through our website as soon as reasonably practicable after filing such materials with the SEC.

To access these filings, go to the Company’s website at https://investors.heritagepci.com and under the “Investors”

heading, click on “Financial Information”

then “SEC Filings”.

To access these filings, go to the Company’s website at https://investors.heritagepci.com and under the “Investors” heading, click on “Financial Information” then “SEC Filings”.

The SEC maintains an Internet website, www.sec.gov that contains reports, proxy and information statements and other information that we file electronically with the SEC.

7 unchanged sentences

This Annual Report on Form 10-K contains forward-looking statements that contain risks and uncertainties.

Please Refer to the discussion of “Forward-Looking Statements”

of this Annual Report in connection with your consideration of the risk factors and other important factors that may affect future results described herein.

Please Refer to the discussion of “Forward-Looking Statements” of this Annual Report in connection with your consideration of the risk factors and other important factors that may affect future results described herein.

Risks Related to Our Business

6 unchanged sentences

If our actual losses exceed our loss reserves, our financial results and our ability to expand our business and to compete in the property and casualty insurance industry may be negatively affected.

Factors that affect unpaid losses and loss adjustment expenses include the estimates made on a claim-by-claim basis known as “case reserves”

coupled with bulk estimates known as “incurred but not yet reported”

(or “IBNR”).

Factors that affect unpaid losses and loss adjustment expenses include the estimates made on a claim-by-claim basis known as “case reserves” coupled with bulk estimates known as “incurred but not yet reported” (or “IBNR”).

Periodic estimates by management of the ultimate costs required to resolve all claims are based on our analysis of historical data and estimations of the impact of numerous factors such as (i) per claim information, (ii) industry and company historical loss experience and development patterns, (iii) legislative enactments, judicial decisions, legal developments in the awarding of damages and changes in political attitudes, and (iv) trends in general economic conditions, including the effects of inflation.

16 unchanged sentences

Therefore, although we attempt to manage our exposure to catastrophes through our underwriting process and the purchase of reinsurance protection, an especially severe catastrophe or series of catastrophes could exceed our reinsurance protection and may have a material adverse impact on our results of operations and financial condition.

In the fourth quarter of 2022 we re-estimated our ultimate losses for Hurricane Irma, which struck Florida in 2017.

As a result of that re-estimation, Heritage has exhausted the private layers of reinsurance specific to Hurricane Irma but has a 45% participation in the FHCF limit remaining Accordingly, should future re-estimations to Hurricane Irma losses increase the expected loss reserves, a portion of the increase will be retained and a portion will be ceded to the FHCF.

In total, for the period from June 1, 2022 through May 31, 2023, we have purchased an aggregate limit of $3.2 billion of catastrophe reinsurance coverage for Heritage

P&C, Zephyr, and NBIC, for multiple catastrophic events.

As further described in Note 13 Reserve for Losses, the Company's 2017 reinsurance agreement with the FHCF was commuted during the third quarter of 2023.

This commutation process resulted in a final determination of and payment for known, unknown or unreported claims relating to Hurricane Irma.

The final amount paid by the FHCF could vary from the

Company’s future estimation of losses to have been recovered from the FHCF.

Accordingly, should future re-estimations to Hurricane Irma losses increase the expected loss reserves, all of the increase would be retained.

In total, for the period from June 1, 2022 through May 31, 2023, we have purchased an aggregate limit of $2.9 billion of catastrophe reinsurance coverage for Heritage P&C, Zephyr, and NBIC, for multiple catastrophic events.

Our ability to access this coverage, however, is subject to the severity and frequency of such events.

11 unchanged sentences

• the uncertainties that inherently characterize estimates and assumptions;

• inflationary pressures on labor and materials, including supply chain disruptions;

• our ability to stay competitive as evolving competitive technologies emerge such as artificial intelligence (“AI”) and machine learning to make pricing, underwriting, or other decisions;

• our selection and application of appropriate rating and pricing techniques;

• the effect of climate change on frequency and severity of insured events from severe weather;

• changes in legal standards, claim resolution practices, and restoration costs;

16 unchanged sentences

Reinsurance coverage may not be available to us in the future at commercially reasonable rates or at all.

The cost of reinsurance is subject to prevailing market conditions beyond our control such as the amount of capital in the reinsurance market, as well as the frequency and magnitude of natural and man-made catastrophes.

The cost of reinsurance is subject to prevailing market conditions beyond our control such as the amount of capital in the reinsurance market, public policy decisions and the expiration of time-limited governmental programs such as the RAP program, as well as the frequency and magnitude of natural and man-made catastrophes.

Our total cost of obtaining reinsurance over the last few years has increased, both on an absolute basis and as a percentage of premiums-in-force, and is expected to continue to increase in the future.

2 unchanged sentences

We may not be able to collect reinsurance amounts due to us from the reinsurers with which we have contracted.

Reinsurance is a method of transferring part of an insurance company’s risk under an insurance policy to another insurance company.

To the extent that our reinsurers are unable to meet the obligations they assume under our reinsurance agreements, we remain liable for the entire insured loss.

We use reinsurance arrangements to significantly limit and manage the amount of risk we retain, to stabilize our underwriting results, and to increase our underwriting capacity.

Our ability to recover amounts due from reinsurers under the reinsurance treaties we currently have in effect is subject to the reinsurance company’s ability and willingness to pay and to meet its obligations to us.

We attempt to select financially strong reinsurers with an A.M.

Best or S&P rating of “A-”

or better or we require the reinsurer to fully collateralize its exposure.

While we monitor from time to time their financial condition, we also rely on our reinsurance broker and rating agencies in evaluating our reinsurers’

ability to meet their obligations to us.

Best or S&P rating of “A-” or better or we require the reinsurer to fully collateralize its exposure.

While we monitor from time to time their financial condition, we also rely on our reinsurance broker and rating agencies in evaluating our reinsurers’ ability to meet their obligations to us.

Our reinsurance coverage in any given year may be concentrated with one or a limited group of reinsurers.

4 unchanged sentences

We have purchased private reinsurance alongside our FHCF layer to fill in gaps in coverage that may result from the adjustment of the limit or retention of our FHCF coverage;

however, such reinsurance would not cover any losses we may incur as a result of FHCF’s inability to pay the full amount of our claims.

If a catastrophic event occurs in Florida, the FHCF may not have sufficient funds to pay all of its claims from insurance companies in full or in a timely manner.

This could result in significant financial, legal and operational challenges to our Company.

In the event of a catastrophic loss, the FHCF’s ability to pay may be dependent upon its ability to issue bonds in amounts that would be required to meet its reinsurance obligations.

There can be no assurance that FHCF will be able to do this.

5 unchanged sentences

The inherent uncertainty of models and our reliance on such models as a tool to evaluate risk may have an adverse effect on our financial results.

We license analytic and modeling software from third parties to facilitate our pricing, assess our risk exposure and determine our reinsurance needs.

Given the inherent uncertainty of modeling techniques and the application of such techniques, these models and databases may not accurately address the emergence of a variety of matters which might impact our exposure to losses.

If these models understate the exposures we are assuming, we may not properly assess the risk and we may make poor decisions relating to pricing, underwriting, and the related amount of reinsurance we purchase.

As a result, our financial results may be adversely impacted, perhaps significantly.

Along with other insurers in the industry, we license analytic and modeling software from third parties to facilitate our pricing, assess our risk exposure and determine our reinsurance needs.

Given the inherent uncertainty of modeling techniques and the application of such techniques, these models have limitations with respect to their usefulness in predicting losses in any reporting period.

Examples of these limitations include significant variations in estimates between models and modelers and material increases and decreases in model results due to changes and refinements of the underlying data elements and assumptions, including with respect to the risks arising from climate change, social inflation or other factors.

Such limitations may lead to questionable predictive capability and post-event measurements that have not been well understood or proven to be sufficiently reliable.

In addition, the models are not necessarily reflective of company or state-specific policy language, demand surge for labor and materials, consumer behavior, prevailing or changing claims, legal and litigation environments, or loss settlement expenses, all of which are subject to wide variation by catastrophe.

Further, in accordance with laws and regulatory requirements in various states in which we conduct

business, we may be required to use a model that has been reviewed and deemed acceptable by a particular state in accordance with standards over which we have no control and that might not align with our business.

Increased competition, competitive pressures, industry developments and market conditions could affect the growth of our business and adversely impact our financial results.

13 unchanged sentences

• the passage of federal proposals for an optional federal charter that would allow some competing insurers to operate under regulations different or less stringent than those applicable to us.

• technological changes also present competitive risks.

For example, our competitive position could be impacted if we are unable to effectively deploy technology such as AI and machine learning that collects and analyzes a wide variety of data points to make underwriting or other decisions, or if our competitors collect and use data we do not have the ability to access or use.

In addition, telematics and other usage-based methods of determining premiums can impact product design and pricing and are becoming an increasingly important competitive factor.

Furthermore, state insurance regulators could have input on usage of AI and machine learning.

These developments and others could make the property and casualty insurance marketplace more competitive by increasing the supply of insurance available.

2 unchanged sentences

We have in the past and may in the future expand through the acquisition of complementary businesses.

This could occur through an acquisition of a company or a portion of a company’s business.

Any future acquisitions may entail a number of risks that could adversely affect our business and the market price of our common stock, including the integration of the acquired operations and information systems, diversion of management's attention, risks of entering new market regions in which we have limited experience, adverse short-term effects on our reported operating results, the potential loss of key employees of acquired businesses, changes for impairment of long-terms assets or goodwill and risks associated with unanticipated liabilities

7 unchanged sentences

External factors, such as compliance with regulations, competitive alternatives, and shifting customer preferences may also impact the successful implementation of our business plan.

Such external factors and requirements may increase our costs and potentially affect the speed with which we will be able to re-allocate capital among our portfolio of policies.

external factors and requirements may increase our costs and potentially affect the speed with which we will be able to re-allocate capital among our portfolio of policies.

There can be no assurance that we will be successful in deploying this strategy.

6 unchanged sentences

We market and write commercial residential policies through a network of approximately 400 independent agents in Florida.

Of our network of approximately 500 retail independent agents for business in the northeastern U.S., our three largest relationships represent approximately $79.0 million in annualized premiums.

Of our network of approximately 500 retail independent agents for business in the northeastern U.S., our three largest relationships represent approximately 16% of annualized premiums.

Of our network of approximately 70 Hawaiian independent agencies, approximately 50% are affiliated with three large multi-producer agencies.

2 unchanged sentences

Many of our competitors also rely on independent agents.

As a result, we must compete with other insurers for independent agents’

Our competitors may offer a greater variety of insurance products, lower premiums for insurance coverage, or higher

commissions to their agents.

As a result, we must compete with other insurers for independent agents’ business.

Our competitors may offer a greater variety of insurance products, lower premiums for insurance coverage, or higher commissions to their agents.

If our products, pricing and commissions do not remain competitive, we may find it more difficult to attract business from independent agents to sell our products.

3 unchanged sentences

• the accuracy of our adjusters as they make their assessments and submit their estimates of damages;

the training, background and experience of our claim’s representatives;

• the training, background and experience of our claim’s representatives;

• the ability of our claims department to ensure consistent claims handling;

• the ability of our claims department to translate the information provided by adjusters into acceptable claims resolutions;

• the availability and timing of information from, and the overall degree of cooperation or lack thereof by, policyholders and their representatives;

• the ability of our claims department to maintain and update its claims handling procedures and systems as they evolve over time based on claims and geographical trends in claims reporting.

Any failure to effectively manage the claims adjustment process, including failure to pay claims accurately, could lead to material litigation, undermine our reputation in the marketplace, impair our corporate image and negatively affect our financial results.

Additionally, as a component of the claims process, we leverage CAN’s vendor network to provide repair and remediation services to the policyholder.

If such services are not performed properly, we may face liability.

3 unchanged sentences

Our insurance policies are written for a one-year term.

We make assumptions about the renewal of our prior year’s contracts, including for purposes of determining the amount of reinsurance we purchase.

If actual renewals do not meet expectations or if we choose not to write on a renewal basis because of pricing conditions, our premiums written in future years and our future operations would be materially adversely affected, and we may purchase reinsurance beyond what we believe is the most appropriate level.

We make assumptions about the renewal of our prior year’s contracts, including for purposes of determining the amount of reinsurance we purchase.

If actual renewals do not meet expectations or if we

choose not to write on a renewal basis because of pricing conditions, our premiums written in future years and our future operations would be materially adversely affected, and we may purchase reinsurance beyond what we believe is the most appropriate level.

Our inability to maintain our financial stability rating may have a material adverse effect on our competitive position, the marketability of our product offerings, and our liquidity, operating results and financial condition.

Financial stability ratings are important factors in establishing the competitive position of insurance companies and can have a significant effect on an insurance company’s business.

Many insurance buyers, agents, brokers and secured lenders use the ratings assigned by rating agencies to assist them in assessing the financial stability and overall quality of the companies from which they are considering purchasing insurance or in determining the financial stability of the company that provides insurance.

Each of our insurance company affiliates currently maintain a Demotech rating of “A”

(“Exceptional”) or higher.

Each of our insurance company affiliates currently maintain a Demotech rating of “A” (“Exceptional”) or higher.

Our insurance company subsidiaries and the Company is also rated BBB- or better by KBRA.

These financial stability ratings provide an objective baseline for assessing solvency and should not be interpreted as (and are not intended to serve as) an assessment of a recommendation to buy, sell, or hold, any securities of an insurance company or its parent holding company, including shares of our common stock.

On an ongoing basis, rating agencies review the financial performance and condition of insurers and can downgrade or change the outlook on an insurer’s ratings due to, for example, a change in an insurer’s statutory capital, a reduced confidence in management or a host of other considerations that may or may not be under the insurer’s control.

All ratings are subject to continuous review;

3 unchanged sentences

Further, we may require additional capital in the future which may not be available or may only be available on unfavorable terms.

future, policy and/or geographic expansion, all balanced by the business risks we choose to assume and cede.

Our future growth and future capital requirements will depend on the number of insurance policies we write, the kinds of insurance products we offer, the geographic markets in which we do business and, to the extent part of our business strategy in the future, policy and/or geographic expansion, all balanced by the business risks we choose to assume and cede.

Growth initiatives require capital.

7 unchanged sentences

If we cannot obtain adequate capital on favorable terms or at all, our business, financial condition or results of operations could be materially adversely affected.

Our financial results may be negatively affected by the fact that a portion of our income is generated by the investment of our company’s capital, premiums and loss reserves.

A portion of our income is, and likely will continue to be, generated by the investment of our capital, premiums and loss reserves.

4 unchanged sentences

This risk could be amplified in periods of rising interest rates.

We currently hold all of our cash in accounts with eight financial institutions and, as a result of this concentration, a portion of the balances in such accounts exceeds the Federal Deposit Insurance Corporation (“FDIC”) insurance limits.

While we monitor and adjust the balances in our accounts as appropriate, these balances could be impacted if any of these financial institutions fail and could be subject to other adverse conditions in the financial markets.

4 unchanged sentences

Loss frequency and severity in the property and casualty insurance industry and multi-peril personal lines business has continued to increase in recent years, often driven by actual and social inflation.

Litigation and assignment of benefits (“AOB”) in the State of Florida is an example of these trends.

For example, in recent years, Florida homeowners have been assigning the benefit of their insurance recovery to third parties, which has resulted in increases in the size and number of claims and the amount of litigation, interference in the adjustment of claims, the assertion of bad faith actions and one-way rights to claim attorney fees.

The Florida legislature enacted several reform bills in the last three years with the intention to limit AOB and frivolous litigation.

The Florida legislature enacted several reform bills in the last several years with the intention to limit AOB and frivolous litigation.

There can be no assurance that this new legislation will reduce the future impact of AOB or litigated claims practices.

24 unchanged sentences

These regulations relate to, among other things, the approval of policy forms and premium rates, our conduct in the marketplace, our compliance with solvency and financial reporting requirements, transactions with our affiliates, limitations on the amount of business we can write, the amount of dividends we can pay to stockholders, and the types of investments we can make.

Insurance holding company regulations generally provide that transactions between an insurance company and its affiliates must be fair and reasonable and must be clearly and accurately disclosed in the records of the respective parties, with expenses and payments allocated between the parties in accordance with customary accounting practices.

parties, with expenses and payments allocated between the parties in accordance with customary accounting practices.

Many types of transactions between an insurance company and its affiliates, such as transfers of assets, loans, reinsurance agreements, service agreements, certain dividend payments by the insurance company and certain other material transactions, may be subject to prior approval by, or prior notice to, state regulatory authorities.

1 unchanged sentence

These regulatory requirements may adversely affect or inhibit our ability to achieve some or all of our business objectives.

In addition, regulatory authorities also may conduct periodic examinations into insurers’

business practices.

In addition, regulatory authorities also may conduct periodic examinations into insurers’ business practices.

These reviews may reveal deficiencies in our insurance operations or differences between our interpretations of regulatory requirements and those of the regulators.

2 unchanged sentences

For example, in 2007, Florida enacted legislation that led to rate levels in the private insurance market that we believe, in many instances in the past, were inadequate to cover the related underwriting risk.

This same legislation required Citizens Property Insurance (“Citizens”) to reduce its premium rates and begin competing against private insurers in the Florida residential property insurance market.

Florida lawmakers may continue to enact or retain legislation that suppresses the rates of Citizens, further adversely impacting the private insurance market and increasing the likelihood that it must levy assessments on private insurance companies and ultimately on Florida consumers.

These and other aspects of the political environment in jurisdictions where we operate may reduce our profitability, limit our growth, or otherwise adversely affect our operations.

During the past several years, various regulatory and legislative bodies have adopted or proposed new laws or regulations to address the cyclical nature of the insurance industry, catastrophic events and insurance capacity and pricing.

These regulations include (i) the creation of “market assistance plans”

under which insurers are induced to provide certain coverages, (ii) restrictions on the ability of insurers to rescind or otherwise cancel certain policies in mid-term or to nonrenew policies at their scheduled expirations, (iii) advance notice requirements or limitations imposed for certain policy non renewals, (iv) limitations upon increases or decreases in rates permitted to be charged, (v) expansion of governmental involvement in the insurance market and (vi) increased regulation of insurers’

policy administration and claims handling practices.

These regulations include (i) the creation of “market assistance plans” under which insurers are induced to provide certain coverages, (ii) restrictions on the ability of insurers to rescind or otherwise cancel certain policies in mid-term or to nonrenew policies at their scheduled expirations, (iii) advance notice requirements or limitations imposed for certain policy non renewals, (iv) limitations upon increases or decreases in rates permitted to be charged, (v) expansion of governmental involvement in the insurance market and (vi) increased regulation of insurers’ policy administration and claims handling practices.

Further, regulatory authorities have relatively broad discretion to deny or revoke licenses for various reasons, including the violation of regulations.

In some instances, we follow practices based on our interpretations of regulations or practices that we believe may be generally followed by the industry.

In some instances, we follow practices based on our interpretations of regulations or practices that we believe may be generally followed by the insurance industry.

These practices may turn out to be different from the interpretations of regulatory authorities.

If we do not have the requisite licenses and approvals or do not comply

with applicable regulatory requirements, insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or otherwise penalize us.

If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or otherwise penalize us.

This could adversely affect our ability to operate our business.

5 unchanged sentences

An insurance company with total adjusted capital that is less than 200% of its authorized control level risk-based capital is at a company action level, which would require the insurance company to file a risk-based capital plan that, among other things, contains proposals of corrective actions the company intends to take that are reasonably expected to result in the elimination of the company action level event.

Additional action level events occur when the insurer’s total adjusted capital falls below 150%, 100%, and 70% of its authorized control level risk-based capital.

The lower the percentage, the more severe the regulatory response, including, in the event of a mandatory control level event (total adjusted capital falls below 70% of the insurer’s authorized control level risk-based capital), placing the insurance company into receivership.

Additional action level events occur when the insurer’s total adjusted capital falls below 150%, 100%, and 70% of its authorized control level risk-based capital.

As of December 31, 2023, our insurance subsidiaries each maintained a risk-based capital ratio of over 300% and complied with the requirement of our state regulators.

Our subsidiary, HPCI, has agreed to continue to maintain a risk-based capital ratio of at least 300%.

Our subsidiary, Heritage P&C, has agreed to continue to maintain a risk-based capital ratio of at least 300%.

Our subsidiary, NBIC, has agreed to maintain a risk-based capital ratio requirement of 325%.

15 unchanged sentences

Such acts may affect our ability to obtain approval for rate changes that may be required to attain rate adequacy along with targeted levels of profitability and returns on equity.

Additionally, because we often must obtain regulatory approval prior to changing rates, delays in the filing, review or implementation of rate changes can adversely affect our ability to attain rate adequacy.

Our ability to afford reinsurance required to reduce our catastrophe risk may be dependent upon the ability to adjust rates for our cost.

Moreover, when state regulations allow us to implement rate changes while filings are pending, we risk having to refund premiums if the implemented changes are greater than those ultimately approved.

Additionally, we are required to participate in guaranty funds for insolvent insurance companies.

12 unchanged sentences

Due to inflationary pressures on the U.S.

economy and governmental action to combat inflation, interest rates increased during 2022 and it appears likely that interest rates will continue to increase during 2023, which may decrease our net income and cash flows.

economy and governmental action to combat inflation, interest rates have been above recent historical levels, which may decrease our net income and cash flows.

Our credit agreement contains restrictions that can limit our flexibility in operating our business.

The agreement governing our credit facilities contains various covenants that limit our ability to engage in certain transactions.

These covenants limit our and our subsidiaries’

ability to, among other things:

These covenants limit our and our subsidiaries’ ability to, among other things:

• incur additional indebtedness;

9 unchanged sentences

Dividend payments on our common stock in the future are uncertain.

our credit facilities, which limit our ability to pay dividends, and other legal and regulatory restrictions on the payment of dividends, our overall business condition and other elements our board of directors considers relevant.

Although we have paid dividends on our common stock in the past, the declaration and payment of dividends will be at the discretion of our board of directors and will depend on our profits, financial requirements and other factors, such as restrictions under our credit facilities, which limit our ability to pay dividends, and other legal and regulatory restrictions on the payment of dividends, our overall business condition and other elements our board of directors considers relevant.

Therefore, investors who purchase our common stock may only realize a return on their investment if the value of our common stock appreciates.

We depend on the ability of our subsidiaries to generate and transfer funds to meet debt obligations and to make dividend payments.

We do not have significant revenue generating operations of our own.

We do not have significant revenue generating operations at the parent company.

As such, our ability to make scheduled payments on our debt obligations and pay dividends depends on the financial condition and operating performance of our subsidiaries.

9 unchanged sentences

We have elected in our certificate of incorporation not to be subject to Section 203 of the DGCL, an anti-takeover law.

In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination, such as a merger, with a person or group owning 15% or more of the corporation’s voting stock for a period of three years following the date the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner.

Accordingly, we will not be subject to any anti-takeover effects of Section 203.

3 unchanged sentences

State insurance holding company laws require prior approval by the state insurance department of any change of control of an insurer that is domiciled in that respective state.

“Control”

is generally defined as the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a company, whether through the ownership of voting securities, by contract or otherwise.

“Control” is generally defined as the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a company, whether through the ownership of voting securities, by contract or otherwise.

Control is generally presumed to exist through the direct or indirect ownership of 10% or more of the voting securities of a domestic insurance company or any entity that controls a domestic insurance company.

5 unchanged sentences

o recognition of large unanticipated accounting charges, such as impairment charges;

o changes in securities analysts’

estimates of our financial performance or the financial performance of our competitors or companies in our industry generally;

o changes in securities analysts’ estimates of our financial performance or the financial performance of our competitors or companies in our industry generally;

o a downgrade of our Demotech or KBRA rating;

20 unchanged sentences

We rely on our information technology systems for the effective operation of our business and for the secure maintenance and storage of confidential data relating to our business and for our policyholders.

Cybersecurity risks could include breaches of systems resulting in compromised data including personally identifiable customer information or other proprietary or confidential information.

We could also be subject to attacks that include denial of service attacks, or the deployment of malware intended to compromise the functionality of our information systems.

Our third-party providers of products, services and support are subject to similar cybersecurity risks.

Any of these breaches could impact our policyholders and our business, resulting in a loss of customers, suppliers, or revenue, including interruptions to our operations or damage to our reputation, regulatory enforcement actions, substantial fines and penalties, litigation or other liability or actions which could have a material adverse effect on our business, cash flows, financial condition and results of operations.

We have implemented security controls to protect our information technology systems, but experienced programmers or hackers may be able to penetrate our security controls, and develop and deploy viruses, worms and other malicious software programs that compromise our confidential information or that of third parties and cause a disruption or failure of our information technology systems.

For example, during the first quarter of 2021, we experienced a cyber intrusion on certain of our information technology systems.

In addition, we have in the past and may in the future be subject to "phishing" attacks in which third parties send emails purporting to be from reputable companies in order to obtain personal information and infiltrate our systems to initiate wire transfers or otherwise obtain proprietary or confidential information.

Our customers provide personal information that we store and maintain in our data warehouse and policy and claims systems.

We have implemented systems and processes to protect against unauthorized access to or use of such personal information, but there is no guarantee that these procedures are adequate to safeguard against all security breaches or misuse of the information.

Furthermore, we rely on encryption and authentication technology to provide security and authentication to effectively secure transmission of confidential information, including customer bank account, credit card information and other personal information.

We have implemented systems and processes to protect against unauthorized access to or use of such personal information, but there is no guarantee that these procedures can prevent any security breaches or misuse of the information.

Furthermore, we rely on encryption and authentication technology to provide security and authentication to secure transmission of confidential information, including customer bank account, credit card information and other personal information.

However, there is no guarantee that these systems or processes will address all of the cyber threats that continue to evolve.

9 unchanged sentences

We have not determined, however, the amount of resources and the time that this development and implementation may require, which may result in short-term, unexpected interruptions to our business, or may result in a competitive disadvantage in price and/or efficiency, as we endeavor to develop or implement new technologies.

In addition, changes in technology typically outpace corresponding regulations, which may lead to periods of uncertainty in the permissible uses of certain technology and to differences or even inconsistencies in the regulatory approaches across jurisdictions.

The absence of regulations or conflicts in regulations may further limit our ability to implement new technology in an effective and timely manner.

We do not have significant redundancy in our operations.

17 unchanged sentences

Unresolve d Staff Comments

Cybersec urity

The Audit Committee (“Audit Committee”) of the Company’s Board of Directors (the “Board”) is actively involved in oversight of the Company’s risk management program, which includes the identification, assessment and management of material cybersecurity risks.

A cybersecurity threat is any potential unauthorized occurrence, on or conducted through, the Company’s information systems that may result in adverse effects on the confidentiality, integrity or availability of the Company’s information systems or any information residing therein.

In general, the Company seeks to address cybersecurity risks through a comprehensive, cross-functional approach that is focused on preserving the confidentiality, security and availability of the information that the Company collects and stores by identifying, preventing and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur.

Cybersecurity risk management and strategy

As one of the elements of the Company’s overall risk management program, the Company’s cybersecurity program is focused on the following key areas:

• Technical Safeguards:

The Company deploys technical safeguards that are designed to protect the Company’s information systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems, anti-malware functionality and access controls, which are evaluated and improved through vulnerability assessments and cybersecurity threat intelligence.

• Incident Response and Recovery Planning:

The Company has established and maintains incident response and recovery plans to timely, consistently, and compliantly address cybersecurity threats that may occur despite the Company’s safeguards , and such plans are tested and evaluated on a regular basis.

• Third-Party Risk Management:

The Company maintains a risk-based approach to identifying and overseeing cybersecurity risks presented by third parties, including vendors, service providers and other external users of the Company’s systems, as well as the systems of third parties that could adversely impact the Company’s business in the event of a cybersecurity incident affecting those third-party systems.

• Outside Consultants:

The Company engages various outside consultants, including contractors, assessors, auditors, outside attorneys and other third parties, to among other things :

• Assist in the design, implementation, and testing of our cybersecurity program, policies and procedures;

• monitor Company networks, servers and endpoints to identify vulnerabilities;

• perform assessments on the Company’s cybersecurity measures, including audits and independent reviews of the Company’s information security control environment and operating effectiveness;

• obtain information of a cybersecurity incident and isolate compromised systems and electronic data from further exposure;

• determine and execute mitigation and remediation options and plans;

• ensure ongoing compliance with applicable legal and regulatory requirements, including notification to required individuals and regulatory bodies in the event of the discovery of an information security breach as defined under applicable laws, and timely and adequate disclosure under applicable SEC rules.

• Education and Awareness:

The Company provides annual training for personnel regarding cybersecurity threats as a means to equip the Company’s personnel with effective tools to address cybersecurity threats, and to communicate the Company’s evolving information security policies, standards, processes and practices.

The Company maintains an Information Security Committee (the “ISC”) which is a cross-functional governance committee comprised of the AVP- Enterprise Information Technology (“IT AVP”), Chief Financial Officer (“CFO”) and Chief Executive Officer (“CEO”).

The ISC is the focal point for all information security activities throughout the Company and acts as a liaison on security matters throughout our group of affiliates.

The ISC, led by the IT AVP works collaboratively across the Company to implement a program designed to protect the Company’s information systems from cybersecurity threats and to promptly respond to any cybersecurity incidents in accordance with the Company’s incident response and recovery plans.

The ISC is charged with developing and implementing policies and procedures for incident response handling, monitoring, and addressing security risks on an ongoing basis.

The ISC is responsible for deploying technology and information security experts to monitor security risks and advise, contain, analyze, and report on security incidents, as necessary.

As described above, the Company also retains a third-party cyber security firm to work hand-in-hand with the ISC to develop and oversee a program to prevent, detect, mitigate and remediate cybersecurity incidents.

The Board has delegated to the Audit Committee the responsibility for monitoring and overseeing the Company’s cybersecurity and other information technology risks, controls, strategies and procedures.

The Company’s IT AVP, on behalf of the ISC, reports to the Audit Committee at least annually regarding technological risk exposure and the Company’s cybersecurity risk management strategy and reports any incidents to the Audit Committee in real time.

Based on these reports, the Audit Committee periodically evaluates the Company’s information security strategies to ensure its effectiveness and, if appropriate, may also include a review from third-party experts.

The Company’s Internal Audit function also provides quarterly updates to the Audit Committee which include an update on cybersecurity risks and related internal controls.

Management’s Expertise

Our IT AVP also ensures he is continually informed about the latest developments in cybersecurity, including potential threats and innovative risk management techniques.

Staying informed on developments in the cyber industry is crucial to the Company’s effective prevention, detection, mitigation and remediation of any cybersecurity incidents.

In addition, the Company’s CEO and IT AVP each hold undergraduate degrees and graduate degrees in their respective fields, and each have over 20 years of experience managing risks at the Company or at similar companies, including risks arising from cybersecurity threats.

Risks from Cybersecurity Threats

Cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected or are reasonably likely to affect the Company, including its business strategy, results of operations or financial condition.

The following is a summary of our offices and locations:

6 unchanged sentences

Clearwater, Florida

Property occupied by unaffiliated tenant

Property occupied by unaffiliated tenants

Company owned

Sunrise, Florida

Regional Office

Johnston, Rhode Island

8 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business