Good morning, and welcome to the Heritage Insurance Holdings Second Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Kirk Lusk. 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. Our comments today will also include non-GAAP financial measures. The reconciliations of and other information regarding these measures can be found in our press release. With me on the call today is Ernie Garateix, our Chief Executive Officer. I'll now turn the call over to Ernie. Thank you, Kirk, and thank you all for joining the call today. To start, I would like to express my appreciation for our team at Heritage and for their hard work and dedication to the company. The commitment of our employees, policyholders, and value partners continues to drive growth across our 16-state footprint. We especially appreciate the solid relationships we have built with our reinsurance partners. During the call today, I will provide a brief overview of our second quarter 2022 performance. Kirk will then provide an update on our key financial performance metrics, and then we'll open up the call for Q&A. First of all, I'd like to highlight the positive underwriting income for the quarter. Despite the many challenges we face in our markets, our rate, underwriting, and exposure management initiatives are having the desired impact on our results. Our net combined ratio of 99.4 attests to the positive impact of our strategic initiatives, which resulted in underwriting income for the quarter. Overall, I'm very pleased with our second quarter results. Excluding the impact of a goodwill write-down, second quarter net income was $2.9 million or 0.11 per diluted share, up from a net loss of $4 million in the prior year quarter. This improvement was primarily driven by higher net earned premium, which outpaced the increase in losses. Net current accident year weather losses increased to $38.1 million, up 7.34% from the prior year quarter. However, our net loss ratio of 64.1% was down nearly five points from the prior year amount. The rate and form changes strategically implemented throughout the book of business over the last year and a half, along with our geographic diversification, intentional exposure management, and selective underwriting for new and renewal business, has begun to positively impact our portfolio. These initiatives resulted in improved average premium per policy by 11.5% from the second quarter of 2021. Our continued selective underwriting efforts to date were on display this quarter as we experienced a nearly 6-point reduction in our combined ratio. Rate increases continue to meaningfully benefit written premiums throughout the book of business. We remain committed to proactively and appropriately raising rates to offset higher loss costs and taking underwriting actions to continue to improve our profitability. During the second quarter, we completed our catastrophe reinsurance program, integrating traditional reinsurance and insurance-linked securities without the use of parametric covers. The success of our program and level of maturity made the new Florida RAP program unnecessary to complete the risk transfer. Our program includes deployment of Citrus Re, which brings additional collateralized reinsurance through capital markets. Lastly, we did suspend offering new personal residential policies in the more highly populated counties in Florida during the quarter. Efforts to increasingly diversify business outside Florida remain successful as we experienced an 18.9% reduction in policies in force and a 14.9% reduction of total insured value for the state of Florida. We also continue to evaluate the impacts of legislation on the homeowners insurance marketplace. The litigious practices in Florida are not only causing companies to go out of business, be downgraded, reduce their writings in the state, but also are driving up costs to every single property insurance buyer in the state of Florida. We appreciate the action taken by the Florida legislature and are cautiously optimistic that actions taken have a positive impact on our results in the challenging claims environment, but also believe that more needs to be done. This concludes my remarks. Let me now turn things over to Kirk for a review of the results in the quarter and key financial performance metrics. Thank you, Ernie. Good morning. As Ernie stated, we are pleased with the underwriting results of the second quarter. Our focus on rate adequacy, underwriting, and profitability in all our geographies has started to gain momentum and resulted in an Adjusted net income, a non-GAAP measure of $2.9 million or 0.11 per diluted share when excluding the impact of the goodwill write-down. Despite the underwriting gain in the quarter, management determined that it was appropriate to write down the remaining goodwill at this time. The determination primarily reflects the decline in economic conditions, which impacted the current stock price and the volatility of the property insurance market caused by the impact of inflation, higher reinsurance costs, and litigated claims in some of our markets. At this point, the company does not have any goodwill remaining on the balance sheet. There was no write-off of intangibles. Driven by the non-cash goodwill write-down of $92 million or 90.8 million after tax, the net loss for the quarter was $87.9 million or 3.32 per diluted share. In-force premiums grew by 3% from Q1 this year to just over $1.2 billion, while policies in force decreased by 1.6% from Q1. The in-force premiums are at the highest level with average personal lines property policy premiums for the first time is just under $2,000. Year-over-year premium in-force was up 3.4%, while policies in force were down by 7.3%. The decrease in policies was most pronounced in Florida, where our personal lines policy in force was down nearly 19% year-over-year. We are committed to the Florida market but recognize the challenges with conducting business in Florida. Abusive litigated claims practices are a primary concern, and we have taken underwriting actions aimed at reducing the adverse impact of these market challenges. We anticipate rate increases in all our geographies will continue to align with loss costs. Our strategy to remain focused on rate adequacy, underwriting, and profitability in all geographies has been successful and will continue to drive moderate reductions in policy count, which will mostly be offset by rising rates in all states. Total revenue for the quarter was up 9% from the prior year quarter, reflecting an increase in premiums earned, investment income, fewer realized losses, and slightly lower other income from policy fees due to lower policies in force. The second quarter weather losses were $38.1 million compared to the prior year weather losses of $35.5 million. The weather losses this quarter impacted the net loss ratio by 24.1 points and is very consistent with last year's impact of weather losses of 24.2 points on the loss ratio. Development was negligible, with $610,000 of favorable development in 2021 and about $82,000 of unfavorable development this quarter. Our net combined ratio for the second quarter of 2022 decreased 5.8 points to 99.4% from 105.2% in the second quarter of 2021. The decrease reflects a 4.7-point improvement in the loss ratio, predominantly driven by our underwriting and rate actions and a 1.1 point improvement from expenses. The ceded premium ratio was 46.6% in the second quarter, down 2.1 points from the second quarter of 2021 of 48.7%. The decrease primarily stems from the growth of gross premiums earned outpacing ceded premium growth and a severe convective storm reinstatement premium in the second quarter of 2021. Shareholders' equity decreased to $180.5 million or 6.80 per share for the second quarter of 2022, driven mostly by the write-down of goodwill and unrealized losses on our fixed income investment portfolio, which is driven by higher interest rate environment. With over $200 million in cash and cash equivalents, we don't anticipate the need to sell these investments in advance of maturity given a duration of 3.6 years. Adding back the unrealized losses, the Adjusted book value per share is $8.35 per share. We operate by design in some very challenging markets, and are focused on generating an underwriting profit and remain unfettered in that pursuit. We have de-risked in some areas and have expanded in others. We have shut down production in some locations and expanded in others. We are disappointed with the current stock price, and while a good write-down was necessary, we believe that the only way to regain the value of the company is to consistently generate a profit and to achieve our target return on equity over an extended time frame. The entire management team and the board of directors are committed to achieving that objective and will take the actions necessary to create value for shareholders. As I have stated before, we will consider all options to realize the value of our entities and will also take the actions necessary to improve margins. That concludes our prepared remarks. Operator, we are ready to begin the question-and-answer portion of the call. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. You have to step a little bit in. Our first question will come from Mark Hughes of Truist. Please go ahead. Yeah, thanks. Good morning. Hey, good morning, Mark. Good morning, Mark. Did you all disclose, kind of your typical rate hike in, Florida and then in other markets? Would be curious to get that versus, how you see loss cost, trends now. Yeah. You know, the rate increases in the Florida market have been in the mid-teens. Outside of that, it varies from, you know, the low single digits to double digits. In a few states, it is higher than that, you know, and actually, you know, exceeding the teens in some locations where, you know, we just had the ability to get more rate. On top of that, we do have an inflation guard factor, which is, you know, 10% in the Southeast and Hawaii and 7.5% in the Northeast. Combining those two, you know, rate increases are, you know, across the board, definitely in the mid-teens to higher. Right. The inflation guard would be on top of the mid-teens in Florida, or is that the increase? Yes, it would be on top. Yep. Okay. Premium increases would be 20%, plus presumably in the- Yes. Florida? Yep. With the inflation guard. Yep, that's correct. How do you see loss cost trends at this point? What's the rate of increase there? Yeah. Loss costs, we have been seeing those, you know, tick up, that type of stuff. You know, I mean, we look at it at a three, five and 10-year, you know, timeframe, you know, and it's been right around 11%-12%. How about lately? I guess seems like some of the material prices have been coming down, so maybe it's too volatile at this point, but just curious to get your sense of you know how it's running as we sit here today. Yeah, it is down. You know, I mean, it's ticked down a point or two over the last couple quarters. It is trending favorably, but it still is, you know, right around that 11 range. What is the total statutory capital and maybe both in Florida and then in the Northeast at Narragansett? Yeah, the statutory capital, holding company audit. And then also, now one other question that always comes up is what is our non-regulated cash. That is about $30 million. The stat equity across the group, you know, Heritage has about $106 million, Zephyr $78 million, NBIC $92 million, total $275 million. What kind of position are you in, you know, to the extent that there's a large storm in Florida, it's a full retention hit. You've got $40 million on a 106 million in stat capital. What happens then? Well, you know, that is backstopped also by Osprey, which is our captive. The hit to the insurance company isn't near that extreme. It's actually, you know, in the low numbers, it's like, you know, $5-10 million as opposed to the $40 million, which would be absorbed by Osprey. Osprey is already fully collateralized for that. Okay. In the event of a storm, not a cat situation, you. Correct. Okay. Depending on the size of the storm, I guess your judgment with, you know, the contracting subsidiary, you've got the opportunity to- Yeah, to get some. Make up for those losses. Yeah. Correct. The total ceded premium or ceded premium ratio, you know, when we think about the, you know, full Q3, Q4, what kind of numbers are we looking at? You know, despite the increase in reinsurance this year, which is very, you know, been very substantial, when we look at the increase in the premiums and the rates we're getting that type of stuff, it actually is going to be relatively flat for the first half of the year. I mean, third quarter is gonna be slightly elevated, but then fourth quarter will be down. For the second half of the year, it'll be very comparable to the first half. At a 47-ish? Yes. Ceded premium to gross. Yep. Gross premiums earned. Okay. You said the HoldCo Capital was $30 million? Correct. Okay. All right. Thank you very much. Thank you. Thank you. The next question comes from Paul Newsome of Piper Sandler. Please go ahead. Good morning, Paul. Good morning. Good morning. Nice to see an underwriting profit. That's just fantastic. Actually, some follow-up questions. On the statutory capital, what are your RBC ratios looking like of late? You know, you would be looking at probably the, you know, the Heritage company in excess of $320. Zephyr would be in excess of $400, and NBIC would be in excess of $370. Well in excess of what AM Best cares about. Correct. On the goodwill write-down, was there a specific trigger for the second quarter versus, say, the first quarter? You know, a lot of the things you talked about, like the declining economy and the low share price. Have been true for a while, and I was wondering if there was a specific trigger, you know, whether it be reinsurance or something else that caused the write-down, other than, say, like an, you know, an annual end of year review type thing? Right. No, it was actually a combination of things. The one of the things I would comment on though, first of all, is that it was not due to the performance of the underlying assets. The underlying assets are performing well, and it really comes down to the stock price. There's two parts of the analysis. 1 is your discounted cash flow, the other part is what is your stock price multiplied times a control premium. That gives you an idea of, you know, what it is, and then you take the difference between that and goodwill. It's really the main driver as far as the math is concerned is the stock price. The drivers are the combination of those items over a period of time. When we look at the first quarter, some of those were trending that way, as far as, you know, drops in stock price, you know, poor economic performance overall, you know, dislocation in the, you know, property market and some of the markets we operate in. I think that it's in looking at all those factors, yeah, and so therefore being consistent for a couple quarters, that's why we evaluated on an interim basis as opposed to typically on 10-1. Okay. Thank you. That's what I had to ask. Appreciate it. Thank you. Thank you. Once again, if you would like to ask a question, please press star then one. The next question comes from Marla Backer of Fidelity. Please go ahead. Thank you. Can you talk a little bit about what your expectations might be for potential regulatory changes in the Florida market, I mean given that, you know, this is a topic that's been under discussion for quite some time. You know, first I'll say that, you know, the reform and the changes that we did get out of special session. We're very grateful and appreciative of. As we stated, we do believe there's more that needs to be done, and we think that what came out of special session is more discussions around what those specifics are. We are actively working, you know, and providing feedback, but I don't think there's anything just quite yet. I think the overall goal is to limit the litigious nature of what we have here in the state of Florida. I do think that momentum will continue going forward into the next session. Okay. Given where you are right now in the process of de-risking and improving profitability, do you feel that at this point you are, you're getting close to looking for new markets in which to do business potentially in order to grow your book of business? I think we're always looking at some new markets, and we do the due diligence around that. We'll continue with the current objectives that we have, which is, you know, limiting what we have in Florida. We're always constantly looking at those other markets and seeing where there's opportunities as they arise. Thank you. Thank you. Thank you. The next question is a follow-up from Mark Hughes of Truist. Please go ahead. Just curious, when you think about the losses in the quarter, your weather losses as you laid them out were still pretty high, but the underlying losses it looks like improved pretty meaningfully. Is that entirely kind of the rate underwriting actions? Was there some other aspect of the weather that maybe was just a little more favorable this quarter? I'm just kind of curious whether this is just. Again, I have the numbers in front of me. Right. It looks like there's still a lot of weather losses, but I'm just sort of curious whether there's any other dynamic that one might attribute the improvement to other than the. Yeah. No. What you laid out here. Yeah. When you look at the weather losses, you know, from a ratio standpoint, you know, last year, you know, second quarter weather losses made up 24.2 points of the loss ratio. This year, 24.1. Even though you could say, "Hey, the losses are elevated," they're very consistent from a ratio standpoint year-o ver- year. Mark, what I will say is we've mentioned several times the underwriting initiatives that we've taken on. Given the market conditions, we have been more selective on the policies and better quality of risk that we're taking. I think you're seeing that come through. Yeah. How your posture in Florida at this point, you're obviously getting nice rate increases. You've been working to reduce your total insured value. Would you anticipate though that that stabilizes, and maybe you get some growth in Florida? Or what's the posture now? Still trimming in Florida and just offsetting that with rate increases? Yeah. At this point, we're very confident about the initiatives we're continuing to take. Should the market conditions change and there's an opportunity for growth in the state of Florida, we will consider that. At this point in time, we're very pleased with the initiatives we're taking, and we'll keep down that same path at this time. Yeah. Any way to characterize, if we look at the loss ratio in Florida versus outside of Florida, are they comparable, different, a lot different? Yeah, no. They have been higher. I think because of a lot of the rate and the underwriting actions, that type of stuff, it's starting to turn. You know, it'll take a little while before it gets more consistent. Of course, the litigious environment in Florida, you know, does elevate that substantially. Yeah. Okay. Thank you very much. All right. Thank you. Thank you, Mark. This concludes our question and answer session. I would like to turn the conference back over to Ernie Garateix for any closing remarks. We'd like to thank everyone for joining the call today and wish everyone a great weekend. The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.