Heritage, American Coastal get boosts from strategy shifts, tame weather

Shares of two Florida-based homeowners' insurers have risen significantly over the past year since a strategy shift put a new focus on commercial lines and the country's growing excess and surplus market.

Heritage Insurance Holdings' share price has risen 115.9% to $7.86 as of March 14 from $3.64 about a year ago, when CEO Ernie Garateix announced during a conference call that the insurer was expanding its excess and surplus (E&S) business and shrinking its footprint in the Sunshine State. Insurance through E&S lines provides coverage for risks that are too high to insure through the admitted market.

Similarly, American Coastal Insurance Corp. has seen its stock surge 438.1% to $10.60 as of March 14 from $1.97 on March 2, 2023, the day CEO Robert Daniel Peed said the company, formerly known as United Insurance Holdings Corp., was exiting its personal lines business and evolving into a specialty commercial lines carrier.

Another factor driving this improved stock performance over the past year is tamer weather, Piper Sandler analyst Paul Newsome said in an interview.

"[In 2022], they had Hurricane Ian and they had very few cat losses in 2023," Newsome said.

A mild quarter

Both companies are also fresh off solid 2023 fourth-quarter earnings as American Coastal reported year-over-year improvements in net income and its combined ratio, as did Heritage.

"Most of the year-over-year improvement in returns is actually just lower cat losses," Newsome said in an interview.

Heritage incurred $3.1 million in catastrophe losses in the fourth quarter compared to $15.3 million a year ago. American Coastal's change was more substantial at $277,000, down from $18.89 million.

Both Heritage and American Coastal declined to comment.

Raymond James & Associates analyst C. Gregory Peters said in a research note that he rated American Coastal's stock at "outperform," expecting the insurer to produce "some of the highest operating [return on beginning equities] among publicly traded insurance carriers offset by potential earnings volatility from hurricane-related risks."

Peters said he was maintaining his 2024 operating EPS estimate of $1.25, but lowered his 2025 estimate to $1.50 due to "a more cautious catastrophe loss assumption and the possibility of additional pricing pressure over the next 18 months."

While price increases and tort reform in Florida have helped, it is unclear whether companies like Heritage and American Coastal can sustain their recent performance in the event of a Hurricane Ian-level storm.

"The question is whether or not the price increases, which are still earning into the book, will make them more resilient in the future than they were," Newsome said. "It's tough to tell how much of the good year this year was just luck and how much of it was their efforts to reduce exposure. I'd like to think that they have a better chance of making money even with a resumption of normal levels of weather losses."