Investor Presentation April 2016
Disclaimer Safe Harbor Statement This presentation contains “forward - looking statements” that are based on management’s beliefs and assumptions and on informatio n currently available to management. Most forward-looking statements contain words that identify them as forward- looking, such as “anticipates,” “believes,” “continues,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions and the negatives of those terms that relate to future events. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Heritage Insurance Holdings, Inc. (“Heritage”) to be materially different from any pr ojected results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements represent the beliefs and assumptions of Heritage only as of the date of this presentation and Heritage undertakes no obligation to update or revise publicly any such forward-looking statements, whether as a result of new information, future events or otherwise. As such, Heritage’s future results may vary from any expectations or goals expressed in, or implied by, the forward- looking statements included in this presentation, possibly to a material degree. Heritage cannot assure you that the assumptions made in preparing any of the forward-looking statements will prove accurate or that any long-term financial or operational goals or targets will be realized. For a discussion of some of the important factors that could cause Heritage’s results to differ materially from those expressed in, or implied by, the forward-looking statements included in this presentation, investors should refer to risks ident ified in Heritage’s Annual Report on Form 10-K for the year ended December 31, 2014 and the Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on March 8, 2016, subsequent Quarterly Reports on Form 10- Q and Heritage’s other filings with the Securities and Exchange Commission. 1
Attractive Financial Profile Market Share Gains & Disciplined Underwriting Model Drive Profitable Growth Annual Gross Combined Ratio Annual Gross Premiums Written $(MM) 100% $586 81.5% 79.4% 74.9% 80% $436 22.0% 22.5% 19.7% 60% 32.0% 28.2% 28.3% 40% $219 20% 28.7% 27.5% 26.9% $43 0% FY13 FY14 FY15 FY12 FY13 FY14 FY15 Gross Loss Ratio Ceded Premium Ratio Gross Expense Ratio 2
Track Record of Consistent Growth Focus Remains on the Bottom Line Net Income $(MM) +96% y/y $93 $47 $34 FY12 FY13 FY14 FY15 ($6) 3
Strong Balance Sheet Best-In-Class Capital Structure • One of the best capitalized Florida insurers – $216 million in surplus • 100% equity capital financed, no reliance on quota share agreements to support underwriting (all reinsurance bought on excess of loss basis) • Low risk investment portfolio: minimum weighted average credit quality of “A” • Conservative capital structure to promote sustainability and growth ($MM) Statutory Surplus Equity $400 357 $300 255 216 173 $200 101 $100 63 27 28 $0 FY12 FY13 FY14 FY15 4
Looking Ahead: Identify New Opportunities Continued Opportunity in Florida & Multi-State Expansion Underway New Product Introductions Seasoned Management Team Attuned to Demands of an Evolving Marketplace Proven Underwriting & Unique Claims Servicing Model Deep Relationships with Highly Rated Reinsurers Strong, Conservative Capital Structure 5
Investment Case • Founded in 2012 to provide personal residential insurance in Florida Business • Business has expanded to include commercial residential; policies in force have grown to ~257K, or ~$592MM in annualized premium as of 12/31/15 • 2013: 45.0% ROAE (1) Superior ROE • 2014: 26.5% ROAE (1) Potential • 2015: 30.2% ROAE (1) •Rated “A” (Exceptional) by Demotech; $357MM GAAP equity as of 12/31/15 Strong Balance • Conservative reinsurance program, which includes pre-paid reinstatements, Sheet designed to capitalize on favorable pricing dynamics • Vertically integrated, end-to-end claims resolution Unique Claims • In-house water mitigation / restoration & reconstruction services is key Servicing Model competitive advantage • Voluntary growth, multi-state expansion, M&A, incremental Citizens assumptions Sustainable Market • Expansion in commercial residential, general liability and other products; Opportunity approved in North & South Carolina, Alabama & Mississippi 6 (1) ROAE = Net income / (Beginning stockholders equity + ending stockholders equity / 2 )
Core Market: Attractive Florida Dynamics • Capturing Opportunity in Florida Florida is the 3 rd largest U.S. state and is projected to grow over 36% by 2040 (1) Population by sq. mile Inforce population is skewed toward hurricane- 1-50 50-500 prone coastal areas >5000 Market dislocation following Hurricane Andrew accelerated post 2004/2005 seasons National & regional insurers reduced exposure in Florida with market share declining 87% in 1999 to 32% in 2013, creating opportunity for FL specialists (2) Heritage has opportunistically grown its market share to become the 3rd largest FL domestic personal and commercial lines insurer by gross premium written as of 9/30/15 (3) Source: FLOIR, Citizens, SNL Financial. (1) University of Florida, Bureau of Economic and Business Research, Florida Population Studies, Bulletin 169, June 2014. (2) Market share defined by Direct Premiums Written. Excludes insurers who only operate in Florida and Citizens 7 (3) Excludes State Farm
New Markets: Coastal State Expansion • Multi-State Expansion Underway Hawaii: Zephyr Insurance acquired adding >$60MM of voluntary premium North Carolina: signed on over 100 agents and wrote approximately 100 policies in the month of Feb 2016 South Carolina: next state to be rolled out; licensed to write, now finalizing forms and rates Alabama & Mississippi: applications approved Georgia & Massachusetts: applications pending 8
Strategic Approach to New Market Opportunities 2012 2013 2014 2015 2016 • • • Formed the CAN • IPO : NYSE “HRTG” • Approved to write Initial $23MM Acquired BRC Managed Repair • P&C in Alabama & equity raise Acquired the assets of Restoration • Vendor Program Mississippi Began writing SVM (water mitigation Specialists • • Second $33MM • Closed acquisition of voluntary policies firm) and formed Approved to write equity raise Zephyr in 1Q16 in Florida Heritage Claims P&C in North & • • Formed Osprey Re Participated in 1 st Response Team South Carolina • Assumed 5 • • Citizens take-out Built commercial Assumed ~68K Citizens personal residential department personal and ~830 residential policies • Acquired SSIC policies commercial policies totaling ~90K • • Assumed ~57K Announced personal and 2.2K acquisition of Zephyr commercial policies 9
Overview of Zephyr Transaction • Zephyr Insurance Company (“Zephyr”) is a specialty property insurance company domiciled in Hawaii and headquartered in Honolulu, HI • Acquisition of Zephyr by Heritage in an Transaction all-cash transaction • Founded in 2000, owned by privately-held Ocean Harbor Insurance Group • Led by President Richard Toyama with 15 employees focused on providing differentiated customer service to • Deal Value $134mm purchase price policyholders • One of the largest residential insurers in Hawaii with 2015 Direct Premium Written $64mm and ~30% of the wind-only market share • Financing Cash on hand • Product: single peril residential hurricane-only policies to Hawaii residents • Form A acquisition filing with the State Approval and • Distribution: Network of 80 independent agents and of Hawaii Insurance Division approved Timing through partnerships with other insurers late February; announced close 3/21/16 • Key Statistics: • Zephyr management team and • 2015 Statutory Net Income: $14MM employees to remain in place Other • Statutory Surplus at 12/31/15: $68.5MM • Opportunity for substantial reinsurance savings from diversification • Rating: Financial Strength Rating of A’ from Demotech 10 Note: Figures are rounded
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