Good morning, and welcome to the Heritage Insurance Holdings Second Quarter 2025 Earnings Conference Call. Please note, today's event is being recorded. [Operator Instructions] And at this time, I would like to turn the conference over to Kirk Lusk, Chief Financial Officer for the company. Please go ahead.

Good morning, and thank you for joining us today. We invite you to visit the Investors section of our website, investors.heritagepci.com, where the earnings release and our earnings call will be archived. These materials are available for replay or review at your convenience. Today's call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon management's current expectations and subject to uncertainty and changes in circumstances. In our earnings press release and our SEC filings, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, and we have no obligation to update any forward-looking statements we may make. For a description of the forward-looking statements and the risks that could cause our results to differ materially from those described in the forward- looking statements, please refer to our annual report on Form 10-K, earnings release and other SEC filings. With me on the call today is Ernie Garateix, our Chief Executive Officer. I will now turn the call over to Ernie.

Thank you, Kirk. Good morning, everyone, and thank you for joining us today. We delivered strong second quarter results, having achieved net income of $48 million, up from $18.9 million second quarter a year ago and maintained the positive trajectory of our earnings. As we have been discussing on our earnings calls over the last year, we continue to see the tangible results from the successful implementation of our strategic initiatives designed to generate positive and consistent shareholder returns by attaining rate adequacy, managing exposure and enhancing our underwriting discipline. This has created a significant level of earnings power within Heritage, which has fully shown through this quarter. As part of that strategy, we re-underwrote our personal lines book while taking needed rate increases to achieve adequate rates. This led to a steady contraction in our policies in-force over the last 4 years of over 200,000 policies. During the same time frame, our in-force premium has increased from approximately $1.1 billion to $1.4 billion, and the diversity of our book has improved. In the second quarter, our policies in-force decreased by just over 7,700 policies, which was the smallest decrease since we started the initiative in June of 2021. As previously mentioned, we are at an inflection point in our business, where we expect our personal lines policies in-force to slowly increase through the second half of this year as our new business production continues to ramp up. New business is up 46% over the second quarter of 2024 and is at the highest level since the second quarter of 2022. Looking to 2026, we expect growth to accelerate as our new business production is fully ramped up across all of our geographies and our exposure management initiatives are fully behind us. The catalyst has been achieving rate adequacy across…

Thank you, Ernie, and good morning, everyone. Starting with our financial highlights. We reported net income of $48.0 million or $1.55 per diluted share in the second quarter. This represents a sharp increase from the $18.9 million or $0.61 per diluted share a year ago second quarter. The increase was primarily driven by decreases in losses and other operating expenses and an increase in net premiums earned. Gross premiums earned rose to $353.6 million, up 1% from $350.1 million in the prior year quarter, reflecting higher gross premiums written over the last 12 months from business growth and rating actions. As we ramp up on recently opened geographies, we expect our growth to accelerate at a managed pace. Net premiums earned increased to $196.3 million, up 3.2% from $190.3 million in the prior year quarter, reflecting higher gross premiums earned as well as a reduction in ceded premiums from the prior year quarter. The reduction in ceded premiums was driven primarily by a $10 million reinstatement premiums for Hurricane Ian for the prior year quarter and which was partially offset by higher ceded premiums in 2025 on our net quota share reinsurance program. Our net investment income for the quarter was $9 million, an $800,000 decrease from the $9.8 million in the prior year quarter, primarily driven by a lower interest rate environment for our sweep accounts and money market funds. We continue to manage our investment portfolio while maintaining a conservative high-quality investment with duration liability matched. Our total revenues for the quarter were $208 million, up 2.2% from $203.6 million in the prior year quarter. This improvement was driven by higher net premiums earned. Our net loss ratio for the quarter improved 17.2 points to 38.5% as compared to 55.7% in the same quarter last year, reflecting significantly…

[Operator Instructions] And the first question will be from Mark Hughes with Truist.

I wonder if you could talk about kind of the attritional loss trajectory as you've seen it develop over the last year and through the second quarter. If we look at your loss ratio, taking out the cats and other weather, a little bit of an uptick this quarter. I don't know that that's -- we can read much into that given all the other moving parts. But I'm just sort of curious from an attritional loss perspective, where do we stand now? Is it still trending downward from your perspective? Is it stabilized? Have we kind of achieved the benefits of some of these regulatory reforms and your underwriting actions? Or is there still potentially more to come? How would you describe it?

Yes. I'd say it's somewhat stabilizing now. And again, I mean, we received rate adequacy. And when you look at it, I mean, frequency has continued to be down. And then our severity is running at a relatively modest rate, which you would expect with inflation. But a lot of this has been frequency driven and frequency has been down. But I must say, I think that, that probably is going to start leveling off. And so I think that we're probably running into a point where we're getting into some stabilization.

Yes. I guess I should have started out saying $1.55 is a big quarter. And so stabilization at $1.55 would be pretty good. But I know you're targeting growth. And on that point, the -- how do you see the competition? There's been some kind of public equity offering activity in Florida. Obviously, losses have improved substantially. You're opening up for growth. What are you finding in terms of agent enthusiasm, level of competition? Anything that you're seeing as you're going out in the market and looking for new business?

Yes. What I'd like to say is the agents are enthusiastic that we've opened up. I think we said we've been closed for quite a bit, and now we're about 90% open -- 90%, 95% open in our geographic areas. As far as competition is concerned, we've always said we welcome responsible competition. I think everyone is aware that there are new carriers in the state, which is good for the public. But that being said, most of those carriers are focusing on the Citizens Take-out, the depopulation program, and we see that and still focusing on that at least for the next year.

Yes. How do you see your rates trending kind of the next -- for the balance of this year and if you think about next year, I know you made some comments about you expect the reinsurance market to more fully factor the reform, and that's positive for 2026 rates potentially. But how do you think the primary rates, either yours or if you want to broaden it up and say, kind of across the state? And here I'm thinking Florida, but you can talk nationally as well. How do you think that will trend?

Yes. I think the trend there is going to be -- it's going to be up in most geographies, although not to the extent it has been in the past simply from the standpoint of with us starting to hit rate adequacy, we really don't need the substantial rates to catch up. I would say almost across the board, the regulators have been very good as far as us getting adequate rates. And now that that's occurred, I mean, I think the rate increases are going to be moderated. There are a few areas here and there where we're still needed to catch up a little bit. But I would say that even in those geographies the discussions there have been very positive, and we're getting there very quickly. So from that standpoint, I think it's very positive. We do have a fair amount of rates still earning through the portfolio, obviously, this year into next year, but I do think it is going to moderate.

Yes. And then one more, if I might. The Northeast, New York, I think Virginia, where you're seeing policy growth, how has the loss experience been in those markets? If you see a little more growth oriented to the Northeast, what will that do for the overall loss ratio?

Yes. Actually, that will be positive from the perspective of that is an area where we're still getting probably a little bit more rate than in the Southeast. So it's a little bit of catch-up in the Northeast, but we're nearly there. I would say we recently got some rates approved in the Northeast, which are really going to kind of help that process quite a bit and accelerate it. So Northeast is getting a little bit more rate than Southeast, but that's going to help us into next year.

And our next question is from Karol Chmiel from Citizens.

Congrats on the great quarter. And my first question is regarding the catastrophe and weather losses. I'm just curious if you can maybe compare it to the prior year's quarter and maybe the quarter from 2 years ago. Are you seeing any change for that quarter? I know that quarter is a lot of Southeast convective storms historically. But can you maybe explain the difference between the past 2 years?

Yes. Well, so for example, year-over-year, our non-cat weather for the quarter was down about $7 million. A lot of that, we do think has to do with the underwriting of the portfolio where we do think we have better risks, newer roofs and just the -- we've been inspecting. And so therefore from that perspective, we think it is a better performing book. So therefore, it is not as susceptible to some of the severe convective storms. I think that they have been a little bit lighter, but I also think that some of it has been just indicative of the underwriting performance of the portfolio.

Great. And then the second question is regarding the prior period development. Can you go into detail if this was from the strengthening of the reserves from last year?

Yes, yes. Some of it is from that strengthening from last year. And again, we did look at strengthening reserves last year. I wanted to make sure that we were adequate at year-end, that stuff. And again, we don't mind slight movements here in our reserves up or down, that's kind of expected, but we want to be as close. I think that when we look at the favorable development now for the quarter, I think that is very positive, and actually we're favorable for the full year to date also. So that's the trend we like to see. And again, I think some of it does have -- is reflective of the strengthening we took last year.

The next question is from Paul Newsome from Piper Sandler.

Maybe you could just unpack a little bit more some of the expected PIF growth by region and where you think opportunistically this will get better from a policy perspective, Florida versus New York versus other states and start with that.

Yes. So let's start with the Mid-Atlantic, right? Virginia is a state we entered a couple of years ago. That's been performing pretty well, and we do see PIF growth coming from Virginia as well as we opened up in New York. Again, we received some rate there that put us at rate adequacy. We've opened that up and the agents have really gone on to writing new business there. So the Northeast will see growth in PIF as well as the Mid-Atlantic. In Florida, as we mentioned, we are reopened, and we're seeing the decline in the policy count there leveling off, but we expect that to be a positive number growing up here in the next quarter. Again, California is growing from a PIF count and Hawaii has also opened up again, again, since we're rate adequate. So we do see the total PIF count coming from various sectors of the different regions that we're in.

Great. That's helpful. Any thought on underlying property claim trends that just from a claim trend perspective is it fairly stable at this point?

I would say it definitely is. So looking at our 3-year frequency trend, it's actually down about 0.9%. So I mean, that's almost pretty flat. Severity on a 3-year basis is up about 5.4%. If you look at a 5-year basis, it's up about 4.4%. So really, those are, I would say, good numbers that are very solid and very manageable as opposed to some of the COVID years, which were clicking up rather substantially. So it's really started to moderate and look very positive at this point.

And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back to Ernie Garateix for any closing remarks.

We appreciate everybody joining the call today, and I hope everyone has a great day.

And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.