Press Release|Insurance

KBRA Affirms Ratings for Heritage Insurance Holdings, Inc. and Two Operating Subsidiaries; Revises Outlook to Negative for Zephyr Insurance Company; Downgrades Rating for Narragansett Bay Insurance Company and Revises Outlook to Stable

20 Dec 2023   |   New York


KBRA affirms the following insurance financial strength ratings (IFSRs) for two key operating subsidiaries of Heritage Insurance Holdings, Inc. (HIH) (NYSE: HRTG): BBB+ for Heritage Property & Casualty Insurance Company (HPCIC) and Zephyr Insurance Company, Inc. (ZIC). Additionally, KBRA downgrades the IFSR for Narragansett Bay Insurance Company (NBIC) to BBB+ from A-. Further, KBRA affirms the issuer rating of BBB- for HIH. The Outlook for HPCIC remains Stable; the outlook for ZIC has been revised to Negative from Stable; the outlook for NBIC has been revised to Stable from Negative; the outlook for HIH remains Negative.

The downgrade of NBIC is largely reflective of an increasing level of underwriting losses across the last three years. Through 3Q 2023, surplus has declined by 35% since 2020 (17% decline from YE 2022), from a combination of higher underwriting losses and lower net investment income. In addition, risk-based capital has declined from the 380-420% range NBIC has maintained over the last five years, though has benefited from capital contributions. Sustained declines in surplus driven by unfavorable loss trends and elevated underwriting leverage reflect a significant change in risk profile relative to its current rating level.

The ratings for all entities (collectively, Heritage) reflect vertically integrated operations, adequate capitalization, conservative investment portfolio, seasoned management team and continued execution of its long-term strategy to diversify the group’s exposures. Through a controlled growth strategy, Heritage’s plan serves to mitigate concentration risk by targeting product growth in additional states primarily in regions that have a low weather loss correlation with Florida. Heritage has maintained a sound reinsurance program with high credit quality carriers and reduced retentions for subsequent events. The vertically integrated operations have helped to provide capital support as needed. The Heritage operating companies are also members of the FHLB, affording HPCIC, NBIC, and ZIC access to additional, low-cost borrowing capability and liquidity. Additionally, KBRA views Heritage’s distribution, including agency networks and large strategic partnerships, as a favorable credit consideration. Balancing these strengths are the organization’s elevated operating losses in recent years, reflective of exposure to natural catastrophes, specifically hurricanes and winter storms. Events have occurred with increased frequency and severity across the last five years. While diversification efforts advance, HPCIC continues to be a significant Florida writer and approximately 26% of the group’s TIV and close to 50% of its premiums are derived from the state. Heritage relies heavily on reinsurance as a risk mitigant.

The revision in Outlook to Stable from Negative for NBIC reflects KBRA’s expectation that the company will continue to take action to restore profitability, including rate increases and exposure management. Further, it is KBRA’s expectation that gross premium leverage will remain manageable relative to its capital position. The change in Outlook to Negative from Stable for ZIC reflects the significant operating losses and deterioration in risk-adjusted capitalization that occurred in 2023 as a result of catastrophe losses. The Negative Outlook for HIH reflects the company’s elevated Debt-to-Capital ratio of 45.0% as of September 30, 2023, which is partially attributable to an accumulated other comprehensive loss (AOCL) of $49.7 million. The Stable Outlook for HPCIC reflects KBRA’s expectation that Heritage will continue to maintain supportive risk-adjusted capitalization and execute their business strategy by making prudent decisions with respect to at-risk capital. Additionally, KBRA believes that HPCIC will continue to benefit from its diversification efforts within Florida, notably, a shift towards commercial residential exposure and away from personal residential exposure.

To access rating and relevant documents, click here.

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Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

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