Heritage Insurance Holdings, Inc. Goodwill & Intangibles Disclosure
Note 3. Intangible Assets, net
For the years ended December 31, 2023 and 2022, other intangible assets were $42.6 million and $49.6 million, respectively. These amounts include $1.3 million relating to insurance licenses classified as an indefinite lived intangible.
The Company utilizes a combination of approaches to value the Company’s single reporting unit. The estimate of fair value was derived from the weighting of the income approach (discounted cash flow model) in conjunction with the market approach (guideline public company method and guideline transaction method) to determine the fair value of the single reporting unit.
Management reviewed intangibles and concluded no circumstances or events occurred that would indicate the carrying value of the intangible assets may not be recoverable other than what was recorded during the second quarter of 2023. During the second quarter of 2023, management impaired certain named intangible assets with a carrying value of $767,000 associated with our construction affiliate resulting from changes to its operations.
During the second quarter of 2022, management determined a triggering event occurred for which it deemed an interim evaluation of goodwill was appropriate and concluded the remaining balance of its goodwill was fully impaired. The carrying value of $92.0 million was written off based on the following factors: (i) disruptions in the equity markets, specifically for property and casualty insurance companies, largely due to recent weather-related catastrophe events; (ii) elevated loss ratios for property insurers in the Company’s markets; and (iii) the Company’s market cap was below book value. These factors reduced the Company’s previously modeled fair value of the Company and resulted in a $92.0 million goodwill impairment charge, as of the second quarter of 2022, most of which was not tax deductible. During the fourth quarter of 2021, the Company recognized $60.5 million for a goodwill impairment charge.
Intangible Assets, net
Our intangible assets resulted primarily from the acquisitions of Zephyr Acquisition Company and NBIC Holdings, Inc. and consist of brand, agent relationships, renewal rights, customer relations, trade names, non-competes and insurance licenses. Finite-lived intangibles assets are amortized over their useful lives from to fifteen years.
The tables below detail the finite-lived intangible assets, net as of December 31, 2023 and 2022, respectively (amounts in thousands):
|
For the Year Ended December 31, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Amortizing intangible assets |
(in thousands) |
|
|||||
Brand |
$ |
1,210 |
|
|
$ |
1,210 |
|
Agent relationships |
|
15,500 |
|
|
|
15,500 |
|
Renewal rights |
|
57,200 |
|
|
|
57,200 |
|
Customer relations |
|
870 |
|
|
|
870 |
|
Trade names |
|
9,000 |
|
|
|
9,000 |
|
Non-compete |
|
4,790 |
|
|
|
4,790 |
|
|
|
88,570 |
|
|
|
88,570 |
|
Accumulated amortization |
|
(47,330 |
) |
|
|
(40,310 |
) |
Total infinite-lived intangible assets, net |
|
41,240 |
|
|
|
48,260 |
|
Indefinite-lived intangible assets: |
|
|
|
|
|
||
License acquired |
|
1,315 |
|
|
|
1,315 |
|
Total intangible assets, net |
$ |
42,555 |
|
|
$ |
49,575 |
|
Estimated annual pretax amortization of intangible assets for each of the next five years and thereafter is as follows (in thousands):
Year |
|
Amount |
|
|
2024 |
|
$ |
6,183 |
|
2025 |
|
$ |
6,183 |
|
2026 |
|
$ |
6,033 |
|
2027 |
|
$ |
5,836 |
|
2028 |
|
$ |
3,913 |
|
Thereafter |
|
$ |
13,091 |
|
|
|
$ |
41,240 |
|
Amortization expense of intangible assets was $6.3 million, $6.4 million and $6.4 million for the years ending December 31, 2023, 2022 and 2021, respectively.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2023 | Mar 13, 2024 | Showing above |
| 2022 | Mar 13, 2023 | |
| 2021 | Mar 14, 2022 | |
| 2020 | Mar 9, 2021 | |
| 2017 | Mar 15, 2018 | |
About Goodwill & Intangibles Disclosures
Goodwill and intangible asset disclosures reveal the premium paid in acquisitions and how management assesses whether that premium retains its value. Since goodwill is no longer amortized under US GAAP, the annual impairment test is the only mechanism that adjusts carrying values downward — making the assumptions behind that test critically important for investors.
Key signals: a history of goodwill impairments suggests management consistently overpays for acquisitions. Watch the gap between reporting unit fair value and carrying amount — when fair value exceeds carrying amount by less than 10-20%, a small decline in business performance could trigger a write-down. For finite-lived intangibles, examine useful life assumptions across customer relationships, technology, and trade names; aggressive estimates inflate near-term earnings. Compare total intangibles-to-total-assets ratios against peers to assess acquisition dependency. Rising goodwill as a percentage of equity can signal balance sheet fragility.