Heritage Insurance Holdings (HRTG) FY2025 10-K Risk Factors: 139 New, 2 Dropped

What the changes say

AI adoption and cybersecurity receive new, detailed treatment, including model errors, privacy, vendor, recovery, and compliance risks.
Insurance profitability remains exposed to pricing errors, regulatory rate limits, competition, and mandated assessments.
Credit-facility covenants and takeover provisions continue to constrain financing, investment, dividends, and changes in control.
Disaster recovery disclosure now acknowledges incomplete testing and reliance on a third-party backup vendor.

What changed since the prior 10-K

New

NewRisks Related to Our Business
legislatively imposed consumer initiatives
Underpricing could compress margins, while overpricing could reduce policy growth and competitiveness.
NewRisks Related to Our Business
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
An optional federal insurance charter could let competitors operate under less stringent rules and increase available insurance supply.
NewRisks Related to Our Business
Our ability to operate efficiently and remain competitive may depend in part on our ability to adapt to technological innovation in our industry
AI tools used for underwriting, modeling, claims, and fraud detection could produce errors, raise compliance costs, or increase cyber, privacy, and vendor exposure.
NewRisks Related to Our Business
ceding insurance risk to reinsurance companies
Unanticipated loss patterns could exceed the protection provided by the company’s underwriting, diversification, and other mitigation strategies.
NewRisks Related to Regulation of Our Insurance Operations
Our revenues and operating performance will fluctuate due to statutorily approved assessments that support property and casualty insurance pools and associations
Required assessments from guaranty funds, joint underwriting associations, fair plans, wind pools, or FHCF could hurt results, cash flow, and marketing.
NewRisks Related to Financing
enter into certain transactions with our affiliates
Credit-facility covenants restrict business and financing actions; noncompliance could accelerate repayment of all outstanding debt.
NewRisks Related to Ownership of Our Common Stock
allowing only our board of directors to fill vacancies on our board of directors
Board control over vacancies and exemption from Delaware Section 203 could hinder acquisitions or efforts to replace directors.
NewRisks Related to Ownership of Our Common Stock
the other risk factors described in this Annual Report
Broader market volatility could depress Heritage’s stock price independently of operating performance, reducing shareholders’ investment value.
NewRisks Related to our Information Technology Systems
Cybersecurity risk management and strategy
Cybersecurity safeguards, including firewalls, intrusion detection, anti-malware tools, access controls, assessments, and threat intelligence, may not prevent attacks.
NewRisks Related to our Information Technology Systems
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
Incident-response, recovery, and third-party oversight plans may fail to address cybersecurity incidents affecting Heritage or its vendors.
NewRisks Related to our Information Technology Systems
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
Cyber incidents involving vendors or external users could disrupt Heritage through compromised third-party systems.
NewRisks Related to our Information Technology Systems
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
Cybersecurity breaches could require legal, regulatory, and SEC notifications, while employee awareness and governance may not ensure timely compliance.
NewRisks Related to our Information Technology Systems
Risks from Cybersecurity Threats
NewRisks Related to our Information Technology Systems
It em 3. Leg al Proceedings
NewRisks Related to our Information Technology Systems
Economic and Market Factors
NewRisks Related to our Information Technology Systems
Strategic Profitability Initiatives
NewRisks Related to our Information Technology Systems
Inflation, Underwriting and Pricing
NewRisks Related to our Information Technology Systems
Gross premiums earned represent the total premiums earned during a period from policies written. Premiums associated with new and renewal policies are earned ratably over the twelve-month term of the policy and premiums associated with assumed policies are earned ratably over the remaining term of the policy
NewRisks Related to our Information Technology Systems
Net realized and unrealized gains or losses represent gains or losses on investment sales and unrealized gains or losses on equity securities
NewRisks Related to our Information Technology Systems
Net expense ratio represents PAC and G&A expenses as a percentage of net premiums earned. Ceding commission income is reported as a reduction of policy acquisition costs and G&A expenses
NewRisks Related to our Information Technology Systems
Overview of 2025 Financial Results
NewRisks Related to our Information Technology Systems
Net premiums earned of $794.2 million, an improvement of 3.4% from $767.9 million in the prior year, reflecting the higher gross earned premium coupled with a reduction in ceded premiums compared to the prior year
NewRisks Related to our Information Technology Systems
Net loss ratio of 39.4%, an 18.8 point improvement over the prior year ratio of 58.2%, driven by the reduction of losses and LAE as described above coupled with higher net premiums earned
NewRisks Related to our Information Technology Systems
Net combined ratio of 73.1%, a 21.1 point improvement from 94.2% in the prior year, primarily driven by lower net loss ratio and a lower net expense ratio as described above
NewRisks Related to our Information Technology Systems
Consolidated Results of Operations
NewRisks Related to our Information Technology Systems
(in thousands, expect per share amounts)
NewRisks Related to our Information Technology Systems
Net investment income, inclusive of net realized gains on debt securities and other investments
NewRisks Related to our Information Technology Systems
Losses and loss adjustment expenses (LAE)
NewRisks Related to our Information Technology Systems
General and administrative expenses
NewRisks Related to our Information Technology Systems
Cash and Cash Equivalents
NewRisks Related to our Information Technology Systems
Fixed Maturity Securities
NewRisks Related to our Information Technology Systems
Deferred Income Tax Asset, net
NewRisks Related to our Information Technology Systems
Reinsurance Recoverable on Paid and Unpaid Claims
NewRisks Related to our Information Technology Systems
Unpaid Losses and Loss Adjustment Expenses
NewRisks Related to our Information Technology Systems
Total Shareholders’ Equity
NewRisks Related to our Information Technology Systems
Liquidity and Capital Resources
NewRisks Related to our Information Technology Systems
We believe that our sources of liquidity are adequate to meet our cash requirements for at least the next twelve months
NewRisks Related to our Information Technology Systems
leverage ratio. As of December 31, 2025, the Company paid in commitment fees in aggregate of $109,688 as it relates to the unused portion of the Revolving Credit Facility
NewRisks Related to our Information Technology Systems
All obligations under the Credit Facilities are or will be guaranteed by each existing and future direct and indirect wholly owned domestic subsidiary of the Company, other than all of the Company’s current and future regulated insurance subsidiaries (collectively, the “Guarantors”)
NewRisks Related to our Information Technology Systems
The Company issued the Convertible Notes under an Indenture (the “Convertible Note Indenture”), dated August 16, 2017, by and among the Company, as issuer, the Notes Guarantor, as guarantor, and the trustee party thereto (the “Trustee”)
NewRisks Related to our Information Technology Systems
The Convertible Notes mature on August 1, 2037, unless earlier repurchased, redeemed or converted
NewRisks Related to our Information Technology Systems
On or after February 1, 2037 until the close of business on the second business day immediately preceding August 1, 2037, holders may surrender their Convertible Notes for conversion at any time, regardless of the foregoing circumstances
NewRisks Related to our Information Technology Systems
Contractual Obligations and Commitments
NewRisks Related to our Information Technology Systems
Market Sensitive Instruments and Risk Management
NewRisks Related to our Information Technology Systems
Critical Accounting Policies and Estimates
NewRisks Related to our Information Technology Systems
When we receive premium payments from policyholders prior to the effective date of the related policy, we record an advance premium liability. On the policy effective date, we reduce the advance premium liability and record the premiums as described above
NewRisks Related to our Information Technology Systems
We determine our ultimate loss reserves by selecting an estimate within a relevant range of indications that we calculate using generally accepted actuarial techniques. Our selection of the point estimate is influenced by the analysis of our paid losses and incurred losses since inception
NewRisks Related to our Information Technology Systems
Estimated cash, cash equivalents and investments is intended to present a measure of future liquidity and consists of cash, cash equivalents, and investments, less the change in loss reserves, net of taxes
NewRisks Related to our Information Technology Systems
Deferred taxes . At December 31, 2025, we assessed our deferred tax position and hold no valuation against our net deferred tax assets as there is sufficient evidence to support the recorded net deferred tax asset
NewRisks Related to our Information Technology Systems
Recent Accounting Pronouncements Not Yet Effective
NewRisks Related to our Information Technology Systems
It em 7A. Q uantitative and Qualitative Disclosures About Market Risk
NewRisks Related to our Information Technology Systems
Our equity investment portfolio at December 31, 2025 consisted of membership shares held of FHLB common stock which are carried at cost. The estimated fair value of the FHLB common stock was based on the amount we would receive if our memberships were canceled, as the membership cannot be sold
NewRisks Related to our Information Technology Systems
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
NewRisks Related to our Information Technology Systems
Definition and Limitations of Internal Control Over Financial Reporting
NewRisks Related to our Information Technology Systems
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements
NewRisks Related to our Information Technology Systems
Critical Audit Matter Description
NewRisks Related to our Information Technology Systems
How the Critical Audit Matter was Addressed in the Audit
NewRisks Related to our Information Technology Systems
We tested the completeness, integrity, and accuracy of the underlying data used by the Company’s engaged actuaries, such as paid loss data, case reserve data, loss adjustment expense data, and loss development tables
NewRisks Related to our Information Technology Systems
Commitments and contingencies (Note 17)
NewRisks Related to our Information Technology Systems
Adjustments to reconcile net income to net cash provided by operating
NewRisks Related to our Information Technology Systems
Goodwill or intangible asset impairment
NewRisks Related to our Information Technology Systems
Securities Available for sale
NewRisks Related to our Information Technology Systems
Investment Gains and Losses
NewRisks Related to our Information Technology Systems
Allowance for Credit Losses (Available-for-Sale-Debt Securities)
NewRisks Related to our Information Technology Systems
Non-Consolidating Variable Interest Entities (“VIEs”)
NewRisks Related to our Information Technology Systems
Impairment of Other Investments
NewRisks Related to our Information Technology Systems
Major categories of financial assets and liabilities are measured at fair value on a recurring basis. Certain assets and liabilities are measured at fair value on a nonrecurring basis when impaired, which include long-lived assets, and other investments that the Company cannot significantly influence
NewRisks Related to our Information Technology Systems
The Company records direct and assumed premiums written as revenue, which are earned on a daily pro rata basis over the contract period of the related in force policies or reinsurance contract. For any portion of premiums not earned at the end of the reporting period, the Company records an unearned premium liability
NewRisks Related to our Information Technology Systems
Premium Deficiency Reserve
NewRisks Related to our Information Technology Systems
The Company's provisional ceding commissions that it receives in connection with its reinsurance contracts are recorded as an offset to deferred acquisition costs
NewRisks Related to our Information Technology Systems
The allowance for credit losses for reinsurance recoverable is evaluated based on historical loss experience adjusted for current events and reasonable and supportable forecasts from both internal and external sources
NewRisks Related to our Information Technology Systems
Long-Lived Assets—Property and Equipment
NewRisks Related to our Information Technology Systems
Goodwill and Intangible Assets
NewRisks Related to our Information Technology Systems
Recently adopted accounting guidance
NewRisks Related to our Information Technology Systems
Recent accounting guidance not adopted
NewRisks Related to our Information Technology Systems
The proceeds from the sale of debt securities were $ 6.0 million, $ 6.5 million and $ 76.9 million for the years ended December 31, 2025, 2024 and 2023, respectively
NewRisks Related to our Information Technology Systems
Unrealized Losses on Debt Securities
NewRisks Related to our Information Technology Systems
Non-Consolidated Variable Interest Entities (“VIEs”)
NewRisks Related to our Information Technology Systems
For the year December 31, 2025 , and 2024 the Company received return on capital distributions in the amounts of $ 96,000 and $ 216,000 , respectively
NewRisks Related to our Information Technology Systems
For the years ended December 31, 2025 and 2024, other intangible assets, net wer e $ 30.2 million a nd $ 36.4 million, respectively. These amounts include $ 1.3 million relating to insurance licenses classified as an indefinite lived intangible
NewRisks Related to our Information Technology Systems
Note 4. Earnings Per Share
NewRisks Related to our Information Technology Systems
Certain of the Company’s assets are carried at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date
NewRisks Related to our Information Technology Systems
Level 1 – Unadjusted quoted prices are available in active markets for identical assets/liabilities as of the reporting date
NewRisks Related to our Information Technology Systems
Level 3 – Pricing inputs are unobservable and significant to the overall fair value measurement, and the determination of fair value requires significant management judgment or estimation
NewRisks Related to our Information Technology Systems
Significant Unobservable Inputs (Level 3)
NewRisks Related to our Information Technology Systems
Non-recurring fair value measurements
NewRisks Related to our Information Technology Systems
Note 6. Other Comprehensive Income
NewRisks Related to our Information Technology Systems
Because the rate implicit in each operating lease is not readily determinable, the Company uses its incremental borrowing rate to determine present value of the lease payments. The Company used the implicit rates within the finance leases
NewRisks Related to our Information Technology Systems
Short-term lease cost, included in General & Administrative expenses on the Consolidated Statements of Operations
NewRisks Related to our Information Technology Systems
Note 9. Property and Equipment
NewRisks Related to our Information Technology Systems
Note 10. Deferred Reinsurance Ceding Commission
NewRisks Related to our Information Technology Systems
Note 11. Deferred Policy Acquisition Costs, net
NewRisks Related to our Information Technology Systems
2025-2026 Reinsurance Towers by Region
NewRisks Related to our Information Technology Systems
Catastrophe Excess of Loss Reinsurance
NewRisks Related to our Information Technology Systems
Net Quota Share Reinsurance
NewRisks Related to our Information Technology Systems
For losses arising from commercial residential business underwritten by NBIC, the Company also purchased property per risk coverage for losses and loss adjustments expenses in excess of $ 1.0 million per claim. The limit recovered for an individual loss is $ 1.0 million and total limit for all losses is $ 3.0 million
NewRisks Related to our Information Technology Systems
Note 13. Reserve For Unpaid Losses
NewRisks Related to our Information Technology Systems
The Company believes that the reserve for unpaid losses reasonably estimates the amount necessary to pay all claims and related expenses which may arise from incidents that have occurred as of the balance sheet date
NewRisks Related to our Information Technology Systems
Reinsurance recoverable on unpaid losses includes expected reinsurance recoveries associated with reinsurance contracts the Company has in place. The amount may include recoveries from catastrophe excess of loss reinsurance, net quota share reinsurance, per risk reinsurance, and facultative reinsurance contracts
NewRisks Related to our Information Technology Systems
Senior Secured Credit Facility
NewRisks Related to our Information Technology Systems
The net proceeds from the advance, along with cash on hand, were used to repay approximately $ 78 million in principal amount outstanding under the Prior Credit Agreement, including to pay accrued interest, fees, costs and expenses in connection with the closing of the Amended and Restated Credit Agreement
NewRisks Related to our Information Technology Systems
As of December 31, 2025 and at December 31, 2024 , the Company also held other common stock from FHLB Boston for a value of $ 177,197 , classified as equity securities and reported at fair value on the condensed consolidated financial statements
NewRisks Related to our Information Technology Systems
For the years ended December 31, 2025 and 2024 , the Company made monthly interest payments as per the terms of the loan agreement in aggregate of $ 235,881 , and $ 224,895 , respectively
NewRisks Related to our Information Technology Systems
The covenants and other requirements under the revolving agreement represent the most restrictive provisions that we are subject to with respect to the Company's long-term debt
NewRisks Related to our Information Technology Systems
The Company had no capital loss carryforward as of December 31, 2025 and 2024
NewRisks Related to our Information Technology Systems
Note 16. Statutory Accounting and Regulations
NewRisks Related to our Information Technology Systems
State insurance laws limits an insurer’s investment in equity instruments and also restricts investments in medium to low quality debt instruments. The Company’s insurance affiliates were in compliance with all investment restrictions at December 31, 2025 and 2024
NewRisks Related to our Information Technology Systems
The Company reported its insurance subsidiaries’ assets, liabilities and results of operations in accordance with GAAP, which varies from statutory-basis accounting principles prescribed or permitted by state laws and regulations, as well as by general industry practices
NewRisks Related to our Information Technology Systems
Note 17. Commitments and Contingencies
NewRisks Related to our Information Technology Systems
Irma, which struck in 2017, Hurricane Ian, which struck in 2023, and Hurricane Milton, which struck in 2024, have triggered the Company’s FHCF coverage
NewRisks Related to our Information Technology Systems
Note 18. Accounts Payable and Other Liabilities
NewRisks Related to our Information Technology Systems
Note 19. Accrued Bonus Compensation
NewRisks Related to our Information Technology Systems
Note 20. Related Party Transactions
NewRisks Related to our Information Technology Systems
Note 21. Employee Benefit Plan
NewRisks Related to our Information Technology Systems
Public and Private Offering of shares of Common Stock
NewRisks Related to our Information Technology Systems
On April 15, 2025, the Company awarded 9,000 shares of time-based restricted stock, with a fair value at the time of grant of $ 17.30 per share under the 2023 Plan to certain employees. The time-based restricted stock vested on December 15, 2025
NewRisks Related to our Information Technology Systems
On January 10, 2025, the Company awarded 1,000 shares of time-based restricted stock, with a fair value at the time of grant of $ 10.86 per share under the 2023 Plan to an employee. The time-based restricted stock vested on December 15, 2025
NewRisks Related to our Information Technology Systems
In March 2024, the Company awarded an aggregate of 8,390 shares of time-based restricted stock, with a fair value at the time of grant of $ 7.15 per share to certain employees. The time-based restricted stock fully vested on December 15, 2024
NewRisks Related to our Information Technology Systems
The 2023 Plan authorizes the Company to grant stock options at exercise prices equal to the fair market value of the Company’s stock on the dates the options are granted. The Company has not granted any stock options since 2015 and all unexercised stock options have since been forfeited
NewRisks Related to our Information Technology Systems
Awards are being amortized to expense over a one to three year vesting period. The Company recognized $ 5.4 million, $ 3.3 million, and $ 1.3 million of compensation expense for the years ended December 31, 2025, 2024 and 2023, respectively
NewRisks Related to our Information Technology Systems
Note 24. Selected Quarterly Financial Data (unaudited)
NewRisks Related to our Information Technology Systems
Diluted net income per share
NewRisks Related to our Information Technology Systems
The accounting policies applied in measuring segment results are the same as those described in Note 1, “ Summary of Significant Accounting Policies ,” to the consolidated financial statements.
NewRisks Related to our Information Technology Systems
Note 26. Subsequent Events
NewRisks Related to our Information Technology Systems
On January 23, 2026, the Company received full payment on the $ 11.0 million promissory note recorded previously in Other accounts receivable, along with the accrued but unpaid interest of $ 48,521
NewRisks Related to our Information Technology Systems
Evaluation of Disclosure Controls and Procedures
NewRisks Related to our Information Technology Systems
Limitations on Effectiveness of Controls
NewRisks Related to our Information Technology Systems
Management’s Report on Internal Control Over Financial Reporting
NewRisks Related to our Information Technology Systems
Changes in Internal Control Over Financial Reporting
NewRisks Related to our Information Technology Systems
Item 10. Directors, Executive Officers and Corporate Governance
NewRisks Related to our Information Technology Systems
Item 1 1. Executive C ompensation
NewRisks Related to our Information Technology Systems
I tem 12. Secur ity Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
NewRisks Related to our Information Technology Systems
Item 13. Certa in Relationships and Related Transactions, and Director Independence
NewRisks Related to our Information Technology Systems
Item 14. Prin cipal Accountant Fees and Services
NewRisks Related to our Information Technology Systems
The following additional financial schedules are furnished herewith pursuant to requirements of Form 10-K
NewRisks Related to our Information Technology Systems
(on behalf of the Registrant and as Principal Executive Officer)
NewRisks Related to our Information Technology Systems
(In thousands, except share and per share amounts)
NewRisks Related to our Information Technology Systems
Organization and Basis of Presentation
NewRisks Related to our Information Technology Systems
SCHEDULE VI – SUPPLEMENTAL INFORMATION CONCERNING CONSOLIDATED PROPERTY AND CASUALTY INSURANCE OPERATIONS

Dropped

DroppedRisks Related to Regulation of Our Insurance Operations
We operate in a regulatory environment where certain entities and organizations have the authority to require us to participate in assessments. Currently these entities and organizations include, but are not limited to, state guaranty funds, state joint underwriting associations, fair plans, wind pools, or the FHCF
DroppedRisks Relating to Ownership of Our Common Stock
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

Reworded

79% rewrittenRisks Related to Our Business
The failure of the risk mitigation strategies we utilize could have a material adverse effect on our financial condition or results of operations
The current text no longer specifically lists ceding insurance risk to reinsurers among the mitigation strategies; the unforeseen-loss warning remains.
62% rewrittenRisks Related to our Information Technology Systems
We do not have significant redundancy in our operations
The disclosure adds incomplete recovery-plan testing and complete daily third-party backups, while emphasizing that systems are not fully redundant.
57% rewrittenRisks Related to Financing
Our credit agreement contains restrictions that can limit our flexibility in operating our business
The covenant list no longer specifically mentions affiliate transactions in the provided current-year text; restrictions on debt, dividends, investments, liens, and asset dispositions remain.
47% rewrittenRisks Related to Ownership of Our Common Stock
Our stock price in recent years has been volatile and is likely to continue to be volatile, which may impact the value of stock held by investors
The current text removes the catch-all reference to other Annual Report risk factors from the examples of stock-price volatility drivers.
41% rewrittenRisks Related to Our Business
Increased competition, competitive pressures, industry developments and market conditions could affect the growth of our business and adversely impact our financial results
The provided current-year wording is substantively unchanged and continues describing cyclical, highly competitive property-and-casualty markets.
39% rewrittenRisks Related to Ownership of Our Common Stock
Certain provisions of our certificate of incorporation and our bylaws may make it difficult for stockholders to change the composition of our board of directors and may discourage hostile takeover attempts that some of our stockholders may consider to be beneficial
The provided current-year list no longer specifically mentions board-controlled vacancies; the other anti-takeover provisions remain.
26% rewrittenRisks Related to Regulation of Our Insurance Operations
Regulation limiting rate increases may decrease our profitability
The provided current-year wording is substantively unchanged: political pressure and approval delays may prevent rate adequacy and targeted profitability.
Was: Regulation limiting rate increases and requiring us to participate in loss sharing may decrease our profitability

All 176 risk factors

Headings as the filing states them, in filing order.

Risks Related to Our Business

01Our loss reserves are estimates and may be inadequate to cover our actual liability for losses, causing our results of operations to be adversely affected
02We have exposure to unpredictable catastrophes that are more pronounced because a large portion of our insurance business is conducted in coastal states, which exposure can materially and adversely affect our financial results
03Our success depends on our ability to adequately assess risk and set premiums accordingly, and our failure to do so could affect the growth of our business and adversely impact our financial results
04legislatively imposed consumer initiativesNew
05Our results of operations may fluctuate significantly based on industry factors
06Reinsurance coverage may not be available to us in the future at commercially reasonable rates or at all
07We may not be able to collect reinsurance amounts due to us from the reinsurers with which we have contracted
08We carry a significant amount of intangible assets on our consolidated balance sheets. Earnings for future periods may be impacted by impairment charges for intangible assets
09The 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
10Increased competition, competitive pressures, industry developments and market conditions could affect the growth of our business and adversely impact our financial results41% rewritten
11the 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 usNew
12Our ability to operate efficiently and remain competitive may depend in part on our ability to adapt to technological innovation in our industryNew
13We may not be able to effectively integrate newly acquired businesses or achieve expected profitability from acquisitions
14We may not be able to effectively execute our business diversification strategy
15We rely on independent agents to write insurance policies for us, and if we are not able to attract and retain independent agents, our revenues would be negatively affected
16The failure of our claims department to effectively manage or remediate claims could adversely affect our insurance business, financial results and capital requirements
17Any 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
18If actual renewals of our existing contracts do not meet expectations, our premiums written in future years and our future results of operations could be materially adversely affected
19Our 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
20If we are unable to expand our business because our capital must be used to pay greater than anticipated claims, our financial results may suffer. Further, we may require additional capital in the future which may not be available or may only be available on unfavorable terms
21Our 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
22The effects of emerging claim and coverage issues on our business are uncertain
23The failure of the risk mitigation strategies we utilize could have a material adverse effect on our financial condition or results of operations79% rewritten
24ceding insurance risk to reinsurance companiesNew
25Lack of effectiveness of exclusions and other loss limitation methods in the insurance policies we assume or write could have a material adverse effect on our financial condition or our results of operations
26Our future success depends on the efforts of our leadership team and workforce

Risks Related to Regulation of Our Insurance Operations

27We are subject to extensive regulation which may reduce our profitability or limit our growth. Moreover, if we fail to comply with these regulations, we may be subject to penalties, including fines and suspensions, which may adversely affect our financial condition and results of operations
28Our insurance subsidiaries are subject to minimum capital and surplus requirements, and our failure to meet these requirements could subject us to regulatory action
29Litigation or regulatory actions could have a material adverse impact on us
30Regulation limiting rate increases may decrease our profitability26% rewritten
31Our revenues and operating performance will fluctuate due to statutorily approved assessments that support property and casualty insurance pools and associationsNew

Risks Related to Financing

32Our variable rate indebtedness subjects us to interest rate risk, which could cause our annual debt service obligations to increase significantly
33Our credit agreement contains restrictions that can limit our flexibility in operating our business57% rewritten
34enter into certain transactions with our affiliatesNew
35Dividend payments on our common stock in the future are uncertain
36We depend on the ability of our subsidiaries to generate and transfer funds to meet debt obligations and to make dividend payments

Risks Related to Ownership of Our Common Stock

37Certain provisions of our certificate of incorporation and our bylaws may make it difficult for stockholders to change the composition of our board of directors and may discourage hostile takeover attempts that some of our stockholders may consider to be beneficial39% rewritten
38allowing only our board of directors to fill vacancies on our board of directorsNew
39Applicable insurance laws may make it difficult to effect a change of control of our company
40Our stock price in recent years has been volatile and is likely to continue to be volatile, which may impact the value of stock held by investors47% rewritten
41the other risk factors described in this Annual ReportNew

Risks Related to our Information Technology Systems

42Our information technology systems, or those of our key service providers, may fail or suffer a loss of security which could adversely affect our business
43We may be subject to information technology failures, including data protection breaches and cyber-attacks, that could disrupt our operations, damage our reputation and adversely affect our business, operations, and financial results
44The development and implementation of new technologies will require an additional investment of our capital resources in the future
45We do not have significant redundancy in our operations62% rewritten
46Cybersecurity risk management and strategyNew
47Incident 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 basisNew
48the 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 systemsNew
49ensure 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 rulesNew
50Risks from Cybersecurity ThreatsNew
51It em 3. Leg al ProceedingsNew
52Economic and Market FactorsNew
53Strategic Profitability InitiativesNew
54Inflation, Underwriting and PricingNew
55Gross premiums earned represent the total premiums earned during a period from policies written. Premiums associated with new and renewal policies are earned ratably over the twelve-month term of the policy and premiums associated with assumed policies are earned ratably over the remaining term of the policyNew
56Net realized and unrealized gains or losses represent gains or losses on investment sales and unrealized gains or losses on equity securitiesNew
57Net expense ratio represents PAC and G&A expenses as a percentage of net premiums earned. Ceding commission income is reported as a reduction of policy acquisition costs and G&A expensesNew
58Overview of 2025 Financial ResultsNew
59Net premiums earned of $794.2 million, an improvement of 3.4% from $767.9 million in the prior year, reflecting the higher gross earned premium coupled with a reduction in ceded premiums compared to the prior yearNew
60Net loss ratio of 39.4%, an 18.8 point improvement over the prior year ratio of 58.2%, driven by the reduction of losses and LAE as described above coupled with higher net premiums earnedNew
61Net combined ratio of 73.1%, a 21.1 point improvement from 94.2% in the prior year, primarily driven by lower net loss ratio and a lower net expense ratio as described aboveNew
62Consolidated Results of OperationsNew
63(in thousands, expect per share amounts)New
64Net investment income, inclusive of net realized gains on debt securities and other investmentsNew
65Losses and loss adjustment expenses (LAE)New
66General and administrative expensesNew
67Cash and Cash EquivalentsNew
68Fixed Maturity SecuritiesNew
69Deferred Income Tax Asset, netNew
70Reinsurance Recoverable on Paid and Unpaid ClaimsNew
71Unpaid Losses and Loss Adjustment ExpensesNew
72Total Shareholders’ EquityNew
73Liquidity and Capital ResourcesNew
74We believe that our sources of liquidity are adequate to meet our cash requirements for at least the next twelve monthsNew
75leverage ratio. As of December 31, 2025, the Company paid in commitment fees in aggregate of $109,688 as it relates to the unused portion of the Revolving Credit FacilityNew
76All obligations under the Credit Facilities are or will be guaranteed by each existing and future direct and indirect wholly owned domestic subsidiary of the Company, other than all of the Company’s current and future regulated insurance subsidiaries (collectively, the “Guarantors”)New
77The Company issued the Convertible Notes under an Indenture (the “Convertible Note Indenture”), dated August 16, 2017, by and among the Company, as issuer, the Notes Guarantor, as guarantor, and the trustee party thereto (the “Trustee”)New
78The Convertible Notes mature on August 1, 2037, unless earlier repurchased, redeemed or convertedNew
79On or after February 1, 2037 until the close of business on the second business day immediately preceding August 1, 2037, holders may surrender their Convertible Notes for conversion at any time, regardless of the foregoing circumstancesNew
80Contractual Obligations and CommitmentsNew
81Market Sensitive Instruments and Risk ManagementNew
82Critical Accounting Policies and EstimatesNew
83When we receive premium payments from policyholders prior to the effective date of the related policy, we record an advance premium liability. On the policy effective date, we reduce the advance premium liability and record the premiums as described aboveNew
84We determine our ultimate loss reserves by selecting an estimate within a relevant range of indications that we calculate using generally accepted actuarial techniques. Our selection of the point estimate is influenced by the analysis of our paid losses and incurred losses since inceptionNew
85Estimated cash, cash equivalents and investments is intended to present a measure of future liquidity and consists of cash, cash equivalents, and investments, less the change in loss reserves, net of taxesNew
86Deferred taxes . At December 31, 2025, we assessed our deferred tax position and hold no valuation against our net deferred tax assets as there is sufficient evidence to support the recorded net deferred tax assetNew
87Recent Accounting Pronouncements Not Yet EffectiveNew
88It em 7A. Q uantitative and Qualitative Disclosures About Market RiskNew
89Our equity investment portfolio at December 31, 2025 consisted of membership shares held of FHLB common stock which are carried at cost. The estimated fair value of the FHLB common stock was based on the amount we would receive if our memberships were canceled, as the membership cannot be soldNew
90Opinions on the Consolidated Financial Statements and Internal Control Over Financial ReportingNew
91Definition and Limitations of Internal Control Over Financial ReportingNew
92being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statementsNew
93Critical Audit Matter DescriptionNew
94How the Critical Audit Matter was Addressed in the AuditNew
95We tested the completeness, integrity, and accuracy of the underlying data used by the Company’s engaged actuaries, such as paid loss data, case reserve data, loss adjustment expense data, and loss development tablesNew
96Commitments and contingencies (Note 17)New
97Adjustments to reconcile net income to net cash provided by operatingNew
98Goodwill or intangible asset impairmentNew
99Securities Available for saleNew
100Investment Gains and LossesNew
101Allowance for Credit Losses (Available-for-Sale-Debt Securities)New
102Non-Consolidating Variable Interest Entities (“VIEs”)New
103Impairment of Other InvestmentsNew
104Major categories of financial assets and liabilities are measured at fair value on a recurring basis. Certain assets and liabilities are measured at fair value on a nonrecurring basis when impaired, which include long-lived assets, and other investments that the Company cannot significantly influenceNew
105The Company records direct and assumed premiums written as revenue, which are earned on a daily pro rata basis over the contract period of the related in force policies or reinsurance contract. For any portion of premiums not earned at the end of the reporting period, the Company records an unearned premium liabilityNew
106Premium Deficiency ReserveNew
107The Company's provisional ceding commissions that it receives in connection with its reinsurance contracts are recorded as an offset to deferred acquisition costsNew
108The allowance for credit losses for reinsurance recoverable is evaluated based on historical loss experience adjusted for current events and reasonable and supportable forecasts from both internal and external sourcesNew
109Long-Lived Assets—Property and EquipmentNew
110Goodwill and Intangible AssetsNew
111Recently adopted accounting guidanceNew
112Recent accounting guidance not adoptedNew
113The proceeds from the sale of debt securities were $ 6.0 million, $ 6.5 million and $ 76.9 million for the years ended December 31, 2025, 2024 and 2023, respectivelyNew
114Unrealized Losses on Debt SecuritiesNew
115Non-Consolidated Variable Interest Entities (“VIEs”)New
116For the year December 31, 2025 , and 2024 the Company received return on capital distributions in the amounts of $ 96,000 and $ 216,000 , respectivelyNew
117For the years ended December 31, 2025 and 2024, other intangible assets, net wer e $ 30.2 million a nd $ 36.4 million, respectively. These amounts include $ 1.3 million relating to insurance licenses classified as an indefinite lived intangibleNew
118Note 4. Earnings Per ShareNew
119Certain of the Company’s assets are carried at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement dateNew
120Level 1 – Unadjusted quoted prices are available in active markets for identical assets/liabilities as of the reporting dateNew
121Level 3 – Pricing inputs are unobservable and significant to the overall fair value measurement, and the determination of fair value requires significant management judgment or estimationNew
122Significant Unobservable Inputs (Level 3)New
123Non-recurring fair value measurementsNew
124Note 6. Other Comprehensive IncomeNew
125Because the rate implicit in each operating lease is not readily determinable, the Company uses its incremental borrowing rate to determine present value of the lease payments. The Company used the implicit rates within the finance leasesNew
126Short-term lease cost, included in General & Administrative expenses on the Consolidated Statements of OperationsNew
127Note 9. Property and EquipmentNew
128Note 10. Deferred Reinsurance Ceding CommissionNew
129Note 11. Deferred Policy Acquisition Costs, netNew
1302025-2026 Reinsurance Towers by RegionNew
131Catastrophe Excess of Loss ReinsuranceNew
132Net Quota Share ReinsuranceNew
133For losses arising from commercial residential business underwritten by NBIC, the Company also purchased property per risk coverage for losses and loss adjustments expenses in excess of $ 1.0 million per claim. The limit recovered for an individual loss is $ 1.0 million and total limit for all losses is $ 3.0 millionNew
134Note 13. Reserve For Unpaid LossesNew
135The Company believes that the reserve for unpaid losses reasonably estimates the amount necessary to pay all claims and related expenses which may arise from incidents that have occurred as of the balance sheet dateNew
136Reinsurance recoverable on unpaid losses includes expected reinsurance recoveries associated with reinsurance contracts the Company has in place. The amount may include recoveries from catastrophe excess of loss reinsurance, net quota share reinsurance, per risk reinsurance, and facultative reinsurance contractsNew
137Senior Secured Credit FacilityNew
138The net proceeds from the advance, along with cash on hand, were used to repay approximately $ 78 million in principal amount outstanding under the Prior Credit Agreement, including to pay accrued interest, fees, costs and expenses in connection with the closing of the Amended and Restated Credit AgreementNew
139As of December 31, 2025 and at December 31, 2024 , the Company also held other common stock from FHLB Boston for a value of $ 177,197 , classified as equity securities and reported at fair value on the condensed consolidated financial statementsNew
140For the years ended December 31, 2025 and 2024 , the Company made monthly interest payments as per the terms of the loan agreement in aggregate of $ 235,881 , and $ 224,895 , respectivelyNew
141The covenants and other requirements under the revolving agreement represent the most restrictive provisions that we are subject to with respect to the Company's long-term debtNew
142The Company had no capital loss carryforward as of December 31, 2025 and 2024New
143Note 16. Statutory Accounting and RegulationsNew
144State insurance laws limits an insurer’s investment in equity instruments and also restricts investments in medium to low quality debt instruments. The Company’s insurance affiliates were in compliance with all investment restrictions at December 31, 2025 and 2024New
145The Company reported its insurance subsidiaries’ assets, liabilities and results of operations in accordance with GAAP, which varies from statutory-basis accounting principles prescribed or permitted by state laws and regulations, as well as by general industry practicesNew
146Note 17. Commitments and ContingenciesNew
147Irma, which struck in 2017, Hurricane Ian, which struck in 2023, and Hurricane Milton, which struck in 2024, have triggered the Company’s FHCF coverageNew
148Note 18. Accounts Payable and Other LiabilitiesNew
149Note 19. Accrued Bonus CompensationNew
150Note 20. Related Party TransactionsNew
151Note 21. Employee Benefit Plan New
152Public and Private Offering of shares of Common StockNew
153On April 15, 2025, the Company awarded 9,000 shares of time-based restricted stock, with a fair value at the time of grant of $ 17.30 per share under the 2023 Plan to certain employees. The time-based restricted stock vested on December 15, 2025New
154On January 10, 2025, the Company awarded 1,000 shares of time-based restricted stock, with a fair value at the time of grant of $ 10.86 per share under the 2023 Plan to an employee. The time-based restricted stock vested on December 15, 2025New
155In March 2024, the Company awarded an aggregate of 8,390 shares of time-based restricted stock, with a fair value at the time of grant of $ 7.15 per share to certain employees. The time-based restricted stock fully vested on December 15, 2024New
156The 2023 Plan authorizes the Company to grant stock options at exercise prices equal to the fair market value of the Company’s stock on the dates the options are granted. The Company has not granted any stock options since 2015 and all unexercised stock options have since been forfeitedNew
157Awards are being amortized to expense over a one to three year vesting period. The Company recognized $ 5.4 million, $ 3.3 million, and $ 1.3 million of compensation expense for the years ended December 31, 2025, 2024 and 2023, respectivelyNew
158Note 24. Selected Quarterly Financial Data (unaudited)New
159Diluted net income per shareNew
160The accounting policies applied in measuring segment results are the same as those described in Note 1, “ Summary of Significant Accounting Policies ,” to the consolidated financial statements.New
161Note 26. Subsequent EventsNew
162On January 23, 2026, the Company received full payment on the $ 11.0 million promissory note recorded previously in Other accounts receivable, along with the accrued but unpaid interest of $ 48,521 New
163Evaluation of Disclosure Controls and ProceduresNew
164Limitations on Effectiveness of ControlsNew
165Management’s Report on Internal Control Over Financial ReportingNew
166Changes in Internal Control Over Financial ReportingNew
167Item 10. Directors, Executive Officers and Corporate GovernanceNew
168Item 1 1. Executive C ompensationNew
169I tem 12. Secur ity Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersNew
170Item 13. Certa in Relationships and Related Transactions, and Director IndependenceNew
171Item 14. Prin cipal Accountant Fees and ServicesNew
172The following additional financial schedules are furnished herewith pursuant to requirements of Form 10-KNew
173(on behalf of the Registrant and as Principal Executive Officer)New
174(In thousands, except share and per share amounts)New
175Organization and Basis of PresentationNew
176SCHEDULE VI – SUPPLEMENTAL INFORMATION CONCERNING CONSOLIDATED PROPERTY AND CASUALTY INSURANCE OPERATIONSNew

Other Heritage Insurance Holdings 10-Ks

FY2024 10-K risk factors
39 risks
Loss reserves and catastrophe exposure in coastal states dominate Heritage Insurance Holdings, Inc. operations and risk profile.
Filed Mar 13, 2025

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The headings are the filing's own. The one-line readings and the overview are automated and can be wrong: read Item 1A of the 10-K for the exact wording.