Heritage Insurance Holdings, Inc. (HRTG) stock intrinsic value fair value estimate & owner earnings analysis

Heritage Insurance Holdings sells homeowners and commercial residential (condominium and apartment) property insurance, mostly in hurricane-exposed coastal states. At the end of 2025 it had about 357,000 policies and $1.4 billion of annualized premium, and it pays roughly 45 cents of every premium dollar to reinsurers to cap its catastrophe exposure. That reinsurance, together with a state catastrophe fund in Florida, is what keeps a single storm from wiping out the company, but earnings still swing widely with the weather. How we measured earnings. We measure what the business can pay out per share after stock compensation and the equipment and software spending needed to stand still. For an insurer, reported operating cash flow is distorted by the timing of claims payments and reinsurance recoveries, which in 2025 alone moved by more than $400 million in each direction. We strip those movements out, so our figure is close to net income with non-cash items such as goodwill write-offs added back. On that basis per-share earnings were: 2016 $1.72; 2017 $2.93; 2018 $2.07; 2019 $1.23; 2020 $0.28; 2021 -$0.23; 2022 -$2.79; 2023 $1.68; 2024 $1.88; 2025 $6.46. The 2022 loss year included a $92 million non-cash goodwill write-off, which we add back as a sunk acquisition cost; the underlying insurance results were still poor, and that year is why we do not simply extrapolate the good recent years. Why we do not use 2025 as the run rate. 2025 earnings of $6.46 per share came in a year with unusually light storm losses: catastrophe losses were $33 million versus $105 million in 2024 (which included Hurricane Milton), and the net combined ratio (claims plus expenses as a share of net premium, where below 100% is profitable) was 73.1% versus 94.2%. Earnings in the last completed year rose about 250%, but we do not project a repeat: a year of light storms is not something the business controls. We measure the business from 2023 onward, after the pricing and underwriting changes management made following the 2022 loss and the shrinking of policy count in favour of higher premium per policy. The 2023 to 2025 median is $1.88; the ten-year median, which includes the 2022 loss and the 2017 Hurricane Irma year, is $1.70. We use $1.85 per share as normal earnings and assume no growth in the first year, since the 2025 jump reflects weather and we found nothing dated in the filings that would make a repeat likely. Recent results are consistent with the business still earning well: net income was $98.2 million in the first half of 2026 versus $78.5 million a year earlier, on revenue up only about 2%. That is one storm-free half, and hurricane season falls in the second half, so it does not move our level. Base case: about $31 per share. Earnings stay at $1.85 per share with no growth. We credit no growth because written premium was essentially flat in 2025 ($1.436 billion versus $1.433 billion) and commercial residential premium declined on competitive pricing. Management's statement that rates are adequate in over 90% of territories is a claim, not a contract, so we do not build on it. What carries the value forward is the franchise itself: about 90% of policyholders renew each year, the company has operated through the 2017 and 2022 loss years and the 2024 Milton losses, and it holds state licences in fourteen states. Discounted at 6%, flat $1.85 a year is worth about $31. Bear case: about $9 per share. A softer pricing market trims a normal year to about $1.00 per share, and a severe storm year comparable to 2022 (a loss of roughly $2.80 per share) recurs about once every eight years. The concentration on coastal states is disclosed in the filing, the company keeps its first-event loss in a one-in-100-year storm to $50 million at its largest subsidiary, and losses above the $3.75 billion of aggregate reinsurance limit would be its own. It also carries a $74 million term loan (due 2030), which is why the bad years hurt more. Averaging these out gives about $0.52 per share a year. Bull case: about $55 per share. Earnings hold at about $3.30 per share, the average of 2023 to 2025, which requires the pricing already in force and the reinsurance program to keep working and no repeat of a 2022-type loss. It does not require premium growth. What would make this wrong. The value rests on normal earnings of $1.85. If a large hurricane hits Florida in a year when reinsurance is already partly used, the losses could exceed our bear case. On the other side, if the 2025 combined ratio proves repeatable, the shares are worth well more than the base case. Two items could not be fully reconciled from the filing: the filing dates Hurricane Ian to 2023 in one passage, which we treat as a typo, and it gives no premium split by state, so we cannot size the Florida share exactly. Margin-of-safety price. Because the outcomes span a wide range and one storm can erase several years of profit, the margin-of-safety price is set about 55% below the base case, at about $14 per share, roughly 0.85 times book value of about $16.50 per share (stockholders' equity of $505 million on 30.7 million shares).