Heritage Insurance Holdings, Inc. Income Taxes Disclosure
Note 15. Income Taxes
The following table summarizes the provision for income taxes:
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
|
|
(in thousands) |
|
|||||||||
Federal: |
|
|
|
|
|
|
|
|
|
|||
Current |
|
$ |
50,400 |
|
|
$ |
21,710 |
|
|
$ |
5,572 |
|
Deferred |
|
|
3,074 |
|
|
|
(4,530 |
) |
|
|
70 |
|
Provision for Federal income tax |
|
|
53,475 |
|
|
|
17,180 |
|
|
|
5,642 |
|
State: |
|
|
|
|
|
|
|
|
|
|||
Current |
|
|
10,894 |
|
|
|
4,264 |
|
|
|
1,086 |
|
Deferred |
|
|
(699 |
) |
|
|
(308 |
) |
|
|
(30 |
) |
Provision for State income tax expense |
|
|
10,196 |
|
|
|
3,956 |
|
|
|
1,056 |
|
Provision for income taxes |
|
$ |
63,670 |
|
|
$ |
21,136 |
|
|
$ |
6,698 |
|
The income tax expense differs from the amounts computed by applying the U.S. federal income tax rate of as indicated below to pretax income as a result of the following (in thousands):
|
|
For the Year Ended December 31, |
|
|||||||||||||||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||||||||||||||
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
||||||
United States |
|
$ |
221,348 |
|
|
|
|
|
$ |
94,899 |
|
|
|
|
|
$ |
(10,555 |
) |
|
|
|
|||
Foreign |
|
|
37,916 |
|
|
|
|
|
|
(12,223 |
) |
|
|
|
|
|
62,560 |
|
|
|
|
|||
Income from continuing operations before tax |
|
|
259,264 |
|
|
|
|
|
|
82,676 |
|
|
|
|
|
|
52,005 |
|
|
|
|
|||
U.S. federal statutory tax rate |
|
|
54,445 |
|
|
|
21.0 |
% |
|
|
17,362 |
|
|
|
21.0 |
% |
|
|
10,921 |
|
|
|
21.0 |
% |
State and local income taxes, net of federal income tax effect |
|
|
7,908 |
|
|
|
3.1 |
% |
|
|
3,061 |
|
|
|
3.7 |
% |
|
|
828 |
|
|
|
1.6 |
% |
Foreign tax effects |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Bermuda |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Foreign Tax Statutory Exemption |
|
|
(7,962 |
) |
|
|
-3.1 |
% |
|
|
2,567 |
|
|
|
3.1 |
% |
|
|
(13,138 |
) |
|
|
25.3 |
% |
Effect of cross-border tax laws |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
US tax on foreign insurance income |
|
|
7,962 |
|
|
|
3.1 |
% |
|
|
(2,567 |
) |
|
|
-3.1 |
% |
|
|
13,138 |
|
|
|
-25.3 |
% |
Changes in valuation allowances |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,671 |
) |
|
|
10.9 |
% |
Nontaxable or nondeductible items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Executive Compensation 162(m) |
|
|
1,568 |
|
|
|
0.6 |
% |
|
|
925 |
|
|
|
1.1 |
% |
|
|
308 |
|
|
|
0.6 |
% |
Others |
|
|
(193 |
) |
|
|
-0.1 |
% |
|
|
(214 |
) |
|
|
-0.3 |
% |
|
|
326 |
|
|
|
0.6 |
% |
Other Adjustments |
|
|
(58 |
) |
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
(13 |
) |
|
|
— |
|
Total tax expense |
|
$ |
63,670 |
|
|
|
24.6 |
% |
|
$ |
21,136 |
|
|
|
25.6 |
% |
|
$ |
6,698 |
|
|
|
12.9 |
% |
The provision for income taxes was $63.7 million for the year ended December 31, 2025 compared to $21.1 million for the year ended December 31, 2024. The effective tax rate for the year ended December 31, 2025 was 24.6% compared to 25.6% in the prior year. The effective tax rate for 2025 was slightly below than the statutory rate, driven by higher pre-tax income compared to the prior year which had a dilutive effect on permanent tax differences, whereas the effective tax rate for 2024 was slightly higher than the statutory rate.
The significant components of deferred tax assets and liabilities included in the consolidated balance sheets as of December 31, 2025 and 2024 were as follows:
|
|
For the Year Ended December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Deferred tax assets: |
|
(in thousands) |
|
|||||
Unearned premiums |
|
$ |
19,342 |
|
|
$ |
18,617 |
|
Net operating loss |
|
|
— |
|
|
|
1 |
|
Tax-related discount on loss reserve |
|
|
4,399 |
|
|
|
5,079 |
|
Stock-based compensation |
|
|
1,323 |
|
|
|
669 |
|
Property and equipment |
|
|
— |
|
|
|
1,366 |
|
Accrued expenses |
|
|
1,533 |
|
|
|
1,536 |
|
Note discount |
|
|
— |
|
|
|
6 |
|
Leases |
|
|
924 |
|
|
|
959 |
|
Unrealized losses |
|
|
4,185 |
|
|
|
9,813 |
|
Other |
|
|
488 |
|
|
|
459 |
|
Total deferred tax asset |
|
|
32,194 |
|
|
|
38,506 |
|
Valuation allowance |
|
|
— |
|
|
|
— |
|
Adjusted deferred tax asset |
|
|
32,194 |
|
|
|
38,506 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
||
Deferred acquisition costs |
|
$ |
15,379 |
|
|
$ |
15,028 |
|
Prepaid expenses |
|
|
152 |
|
|
|
191 |
|
Property and equipment |
|
|
2,738 |
|
|
|
— |
|
Note discount |
|
|
37 |
|
|
|
— |
|
Basis in purchased investments |
|
|
2 |
|
|
|
6 |
|
Basis in purchased intangibles |
|
|
6,652 |
|
|
|
8,027 |
|
Other |
|
|
1,379 |
|
|
|
1,378 |
|
Total deferred tax liabilities |
|
|
26,339 |
|
|
|
24,630 |
|
Net deferred tax assets |
|
$ |
5,855 |
|
|
$ |
13,876 |
|
The Company had no capital loss carryforward as of December 31, 2025 and 2024.
In assessing the net carrying amount of deferred tax assets, the Company considers whether it is more likely than not that the Company will not realize some portion or all of the deferred tax assets. The ultimate realization of deferred tax assets depends upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
As of December 31, 2025 and 2024, the Company has a gross operating loss carryforward for state income tax purposes (FL State only) of $0 and 10.0 million, respectively. The statute of limitations related to the Company's federal and state income tax returns generally remains open from the Company's filings for 2022 through 2024. Additionally, federal tax return filings for 2019 and 2021 remain to the extent of carryback refunds of 2022 capital and net operating losses. There are currently no tax years under examination.
The Company's reinsurance affiliate, Osprey, which is based in Bermuda, made an irrevocable election under section 953(d) of the U.S. Internal Revenue Code of 1986, as amended, to be treated as a domestic insurance company for U.S. Federal income tax purposes. As a result of this election, the Company's reinsurance subsidiary is subject to United States income tax as if it were a U.S. corporation.
On December 31, 2023, the Government of Bermuda enacted the Corporate Income Tax Act 2023 (Bermuda CIT), which will apply a 15% corporate income tax to certain Bermuda businesses in fiscal years beginning on or after January 1, 2025. The Company currently meets an exception which would delay Bermuda taxation until 2030. Prior to December 31, 2023, the Company had an undertaking from Bermuda that exempted it from any local profits, income or capital gains taxes until the year 2035.
The Organization for Economic Co-operation and Development has issued Pillar Two model rules introducing a new global minimum tax of 15%, which was effective on January 1, 2024. While it is uncertain whether the United States will enact legislation to adopt Pillar Two rules, various other governments around the world have enacted legislation. As currently designed, Pillar Two will ultimately apply to the Company’s worldwide operations. Considering the Company does not have material operations in jurisdictions with tax rates lower than the Pillar Two minimum, these rules have not materially impacted the Company’s global tax costs in 2024 or 2025 and the impact is not expected to be material in future periods. Management will continue to monitor both United States and global legislative action related to Pillar Two for potential impacts.
On July 4, 2025, the "One Big Beautiful Bill Act" ("OBBBA") was signed into law in the United States. The Act makes permanent many of the tax provisions enacted in 2017 as part of the Tax Cuts and Jobs Act that were set to expire at the end of 2025. In addition, the OBBBA makes changes to certain U.S. corporate tax provisions, but many are generally not effective until 2026. Certain changes include the immediate expensing of acquired business assets and a temporary suspension of the requirement to capitalize and amortize U.S. R&D expenditures. The tax effects of the enacted legislation are reflected in the 2025 financials and there was no material impact to the effective tax rate. The Company will continue to monitor the impact of the OBBBA on future financial statements.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 12, 2026 | Showing above |
| 2024 | Mar 13, 2025 | |
| 2023 | Mar 13, 2024 | |
| 2022 | Mar 13, 2023 | |
| 2021 | Mar 14, 2022 | |
| 2020 | Mar 9, 2021 | |
| 2017 | Mar 15, 2018 | |
| 2015 | Mar 8, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.