NYSE:HCI HCI Group Q1 2024 Earnings Report $145.35 -3.37 (-2.27%) As of 12:09 PM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast HCI Group EPS ResultsActual EPS$3.65Consensus EPS $2.74Beat/MissBeat by +$0.91One Year Ago EPSN/AHCI Group Revenue ResultsActual Revenue$206.61 millionExpected Revenue$189.17 millionBeat/MissBeat by +$17.44 millionYoY Revenue GrowthN/AHCI Group Announcement DetailsQuarterQ1 2024Date5/8/2024TimeN/AConference Call DateWednesday, May 8, 2024Conference Call Time4:45PM ETUpcoming EarningsHCI Group's Q1 2025 earnings is scheduled for Thursday, May 8, 2025, with a conference call scheduled at 4:45 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by HCI Group Q1 2024 Earnings Call TranscriptProvided by QuartrMay 8, 2024 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Good afternoon, and welcome to HCI Group's First Quarter 20 24 Earnings Call. My name is Kelly, and I will be your conference operator. Before we begin today's call, I would like to remind everyone that this conference call is being recorded and will be available for replay through June 7, 2024, starting later today. The call is also being broadcast live via webcast and available via webcast replay until May 8, 2025, on the Investor Information section of HEI Group's website, www.heigroup.com. I would now like to turn the call over to Matt Glover, Gateway Investor Relations. Operator00:00:42Matt, please go ahead. Speaker 100:00:44Thank you, Kelly, and good afternoon, everyone. Welcome to HCI Group's Q1 2024 Earnings Call. On today's call is Karen Coleman, HCI's Chief Operating Officer Mark Armsworth, HCI's Chief Financial Officer and Paresh Patel, HCI's Chairman and Chief Executive Officer. Following Karen's operational update, Mark will review our financial performance for the Q1 of 2024 and then Paresh will provide a strategic update. To access today's webcast, please visit the Investor Information section of our corporate website at www.hcigroup.com. Speaker 100:01:18Before we begin, I would like to take the opportunity to remind our listeners that today's presentation in response to questions may contain forward looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. Words such as anticipate, estimate, expect, intend, plan and project and other similar words and expressions are intended to signify forward looking statements. Forward looking statements are not guarantees of future results and conditions, but rather are subject to various risks and uncertainties. Some of these risks and uncertainties are identified in the company's filings with the Securities and Exchange Commission. Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on the company's business, financial conditions and results of operations. Speaker 100:02:00HCI Group disclaims all the obligations to update any forward looking statements. Now with that, I would like to turn the call over to Karen Goldman, Chief Operating Officer. Karen? Speaker 200:02:09Thank you, Matt, and welcome, everyone. In the Q1, HCI Group reported pretax income of $77,400,000 and earnings per share of $3.81 Similar to my comments last quarter, each business unit made a positive contribution to our results, including another quarter of Homeowners Choice and TypTap both being solidly profitable. In force premiums grew in the Q1 and remained above $1,000,000,000 We reported another quarter of improvement in our underwriting results. Despite modest weather losses in the quarter, our gross loss ratio improved to 31% compared to 34% in the prior year's quarter. HCI continued to deliver on its commitment to shareholders, paying a dividend of $0.40 per share, our 54th consecutive quarterly dividend. Speaker 200:02:59Also in the quarter, we completed our first assumption at condo owners reciprocal exchange or as we call it core, which totaled $40,000,000 of in force premium. Following quarter end, Core completed a second assumption in April, which brings total in force premium to $55,000,000 Before I turn it over to Mark, I wanted to provide a quick update on the business that Homeowners Choice and TypTap has assumed from Citizens since November 2023. Overall, the power of the technology we built is showing its value and we've seen results exceed our expectations. We were able to evaluate Citizens' entire portfolio and select the 70,000 policies that best met our underwriting standards. So far, what we have observed is we were able to offer the majority of policyholders a renewal offer that was comparable to or less than if they had stayed with Citizens. Speaker 200:03:52We've retained more policyholders than we had expected. The loss ratio in the business we've assumed is better than anticipated, and we've added more than $250,000,000 of premiums in a few months with almost no added expense. Now, I'll turn it over to Mark to provide more details on our financials. Speaker 300:04:11Thanks, Karen. So as Karen mentioned, this was another good quarter for the company. Pretax income was just over $77,000,000 and diluted earnings per share were $3.81 These results are being driven by the same positive trends we've been discussing for a while, premium growth, higher investment income, better loss trends and declining expense ratios. Gross premiums earned were 42% higher than the same quarter last year, driven by growth in Florida. Earned premium includes $67,000,000 of premium assumed from Citizens, of which $3,600,000 relates to core, which I'll talk about in a minute. Speaker 300:04:52Investment income of $14,000,000 this quarter was about 40% higher than the Q4 last year, continuing the trend of higher investment income each consecutive quarter, driven by higher cash and investment balances combined with higher rates. As we mentioned on the last call, we are starting to lock in some of the higher rates by strategically adding term to our bond portfolio. We recently purchased $170,000,000 of 2 year treasuries at just under 5%. The consolidated gross loss ratio this quarter was 31%, down from 33.6% in the same quarter last year. When the legislative changes were announced in 2022, we expected the gross loss ratio to come down to around 30%, which it has. Speaker 300:05:39The loss ratio was slightly higher than in Q4 because as Karen mentioned, we had some weather this quarter. Maybe more important, the positive loss trends we've been discussing for over a year now have continued. As an example, litigation propensity for the number of lawsuits for any given number of claims is 35% lower than it was before the legislative changes took effect. I mentioned declining expense ratios in my introduction. Labor and operating expense as a percentage of gross premiums earned have been declining with each consecutive quarter. Speaker 300:06:14Why? Because of our operational leverage. In the past 12 months, we've added more than $300,000,000 of premium and added only a handful of people. Along with the lower loss ratio, this helps lead to a lower combined ratio, which was around 70% in the Q4 last year and just under 67% this quarter. This, of course, is being impacted by the Citizens' assumptions for which we have limited reinsurance and policy acquisition expenses. Speaker 300:06:43But once these normalize, we expect the combined ratio to be in the low to mid-80s, which is indicative of a very healthy insurance company and reflects the operational efficiencies we've generated with our technology platform in TypTap. Before I move to the balance sheet, I wanted to mention one more thing in the income statement. As Karen mentioned, we recently started Core, which is a new operating model for us in that we only administer the policies. Even though we do not own the underwriter, we are required to consolidate its income statement into ours. That means consolidated premiums include core premiums, consolidated reinsurance includes core reinsurance and the same for loss expense and policy acquisition expense. Speaker 300:07:26Then, of course, there's an adjustment to net income for any economic gains or losses, which are not ours. In order for a reader to be able to see the impact of Core, we now show it separately in our segmented financial information in the 10 Q. Now to the balance sheet, which continues to improve, driven by profitability, debt management and capital management. You may recall we recently completed a number of capital transactions and when combined with growing profitability, the result is a much stronger balance sheet. In the last 12 months, consolidated cash and investments have gone up by $340,000,000 Holding company liquidity has grown by $30,000,000 Debt has dropped by more than $60,000,000 The debt to cap ratio has declined from 62% to 37%. Speaker 300:08:17Shareholder equity has more than doubled to $395,000,000 And lastly, book value per share has gone up from just under $21 per share to over $38 per share. In summary, this was another great quarter for the company. Revenues up, all of our expense ratios are down, and the balance sheet has continued to strengthen. And with that, I'll hand it over to Paresh. Speaker 400:08:43Thank you, Mark. As highlighted by Cara and Mark's comments, HCI posted outstanding results in the Q1. This is because of our technology. And it is not just a talking point, it is driving our operational capabilities as well as our financial results. And even though we've grown to over $1,000,000,000 of in force premium, this is just a fraction of the $150,000,000,000 homeowners premium market across the U. Speaker 400:09:13S. So there is still plenty of room for growth. But more interesting is something new that we are noticing. Let me elaborate. We have added 70,000 new customers across Homeowners Choice and Tipta. Speaker 400:09:29In addition to that, we've added over 400 condo association policies at Core. The process was seamless because we have the platform to efficiently onboard these policies and as we've demonstrated, we can do it profitably. But we're also noticing that as these policyholders come up for renewal, they are staying with us in ever greater numbers. This is true across Homeowners Choice, TypTap and Core. Furthermore, we have seen strong interest from others to also join. Speaker 400:10:06Our phones have been ringing with prospective customers interested in getting a policy from 1 of the HCI Group of Companies. And it extends even further than that. We're also hearing from agents, brokers and investors asking if we can do more. So in summary, the opportunity that is unfolding in front of us isn't to add some incremental policies, it is much bigger than that. We are looking to see how we can double or triple the size of the business. Speaker 400:10:39We think large numbers of policies are out there still searching for a better solution. And this is just the beginning. There is a growing sense that these trends are expanding throughout the country. And we can use our technology platforms to capture the various opportunities out there in the market as they arise. But as always, we will it will be done in our typical prudent fashion and we are setting ourselves up to be ready to take advantage as these opportunities present themselves. Speaker 400:11:12With that, I will turn it over for questions. Operator00:11:33Your first question is coming from Michael Phillips with Oppenheimer. Please proceed with your question. Your line is live. Speaker 500:11:40Thanks. Good afternoon, everybody. First question, Mark, when you mentioned combined ratio expectations, you said low to mid-80s. What timeframe? Was that this year or just kind of was it a longer term timeframe? Speaker 300:11:52No, I mean this year. Yes, like now. Speaker 400:11:55Okay. Speaker 300:11:55I mean, the point was, it's obviously significantly lower than that right now. But once we normalize in the toward the end of the second quarter with reinsurance and PAC for Citizens policies, that's our expectation for combined ratio like the second half of the year. Speaker 500:12:18Okay, great. Thank you. And then, I guess just curious how I mean you guys reinsurance renewal is coming up pretty soon. How do you think about that given the big growth from Citizens? I mean, I don't know if it's in one direction, your most of your 2024 growth is going to be in Florida, so maybe more concentrated than you otherwise would have been. Speaker 500:12:37So if you buy more or you're just bigger companies, so you need less? So just how are you thinking about the need for reinsurance relative to the prior years because of Citizens? Speaker 400:12:46Hey, Michael, it's Parrish. Look, we have managed this business to grow it from around $50,000,000 of premium back in 2,007 all the way to what it is now. So as the business grows and shrinks, which it has done occasionally as well, we buy an appropriate amount of reinsurance. So yes, the business has grown, but we're already in the market trying to buy an appropriate tower for the upcoming wind season. We are right in the middle of those negotiations and everything else. Speaker 400:13:18So the two items that are there is, we are buying an appropriate size tower for the appropriate size business. The only item that is not finished yet is what will the cost of that reinsurance be. But one presumes because you're buying a lot more quantity, it might be the overall dollars will go up, but it's a question of will it go up as a percentage of revenue, yes. Speaker 500:13:42All right. Okay, good. Yes, thank you. And then I guess lastly, Paresh, you mentioned the phone calls that are coming in. You're not looking to grow the company policy by policy, but maybe looking Speaker 400:13:52to do more stuff. Speaker 500:13:54I guess, are you also considering are you getting any calls and would you consider maybe being fronting for other homeowners companies as an already right business that don't have your technology and front for them as you expand outside of Florida and to more nationwide? Would that be an option? Speaker 400:14:10Yes. There are a number of options that people have approached us with, and obviously, we're evaluating them, including people wanting us to buy books of business or buy small carriers kind of thing. So there's a broad range of options that are unfolding in front of us. Obviously, we're trying to make sure we are prudent as to where we deploy our technology so that it has maximum long term value. But fronting could be an example as well, yeah? Speaker 500:14:38Okay. Yes, sure. Thank you. Last one for now, just on numbers question. You had mentioned the in force premium from core April to $55,000,000 I think before you said you were torrying around $75,000,000 Is that still the case for core? Speaker 400:14:54Ultimately, yes. Speaker 500:14:57And that's this year, correct, right? Speaker 600:14:59Yes. Okay. Speaker 300:15:01Yes, good. Speaker 400:15:02I think that you brought up for look, I also want to point out how amazing this is, right? Core had 0 revenue on January 1 this year. It's May 8, less than 5.5 months later and you're already up $55,000,000 as we had sort of laid out that we will be doing this, right? This is how easily and seamlessly we can add to this, yes? Speaker 700:15:30Yes? Operator00:15:35Your next question is coming from Mark Hughes with Truist. Speaker 600:15:45Hi, Mark. Speaker 700:15:46The low to mid-80s combined ratio, just to be clear, that's is that gross or net earned? Speaker 300:15:56Net earned. Speaker 700:15:59That's on net earned? Speaker 300:16:02Yes. Speaker 700:16:03Okay. And then the cash at the holdco at this point? Speaker 300:16:08So holding company liquidity at the end of Q1 is about 220,000,000 Speaker 700:16:18dollars And then did you give earned premium number for the takeout this quarter? Speaker 300:16:27So, what I had said was the in earned premium, there is $67,000,000 of that relates to Citizens' assumptions. And of that 67, dollars 3,600,000 of it is core. Speaker 700:16:46Okay. And Speaker 300:16:46that's of course some of that is direct, some of that is assumed, but in Q1, most of that is assumed, right? Yes. Speaker 700:16:56And then how do you feel about the go ahead. Speaker 300:17:01No, no, sorry, I was coughing. Sorry about that. Speaker 500:17:05Okay. How Speaker 700:17:07do you feel about the takeout opportunity? Are there still attractive policies after what you've done and others? How do you feel about the potential, say, next time around? Speaker 400:17:24Hey, Mark, it's Paresh. As we had said previously, there's still 1,100,000 policies in Citizens, right? We can clearly see using our technology that a large number of them are green, a large number of them are red, right? So there is still an opportunity there, right? It's just a question of when to go after them and what is the most prudent fashion in which to do so, yes? Speaker 700:17:53Yes. And then is there a written number associated with the takeout? You obviously just gave the earned, but is there a written just for referencing? Speaker 300:18:12For written? Yes. So, there is about the total assumed written in Q1 was about $43,000,000 Speaker 700:18:27And that was was that already incorporated into the homeowner choice in TypTap and Core? Speaker 300:18:40Yes, I mean, I can give it to you by underwriter if you need it that way. But of that yes, of that $43.19 of that was core. Speaker 400:18:51And Mark, from previous conversations, you know it works slightly differently with Citizens because your written premium is only the unearned premium that you're assuming. So it sort of comes in a lumpy fashion until we do renewal and get them onto our paper, yes. Speaker 700:19:08Yes. And when you're talking about the success you're having with the Citizens Takeout, I think you said the renewals are coming in better than expected. Your pricing generally, you're able to offer pricing that's in line or less for renewal. Was there another aspect of that? Again, as you're describing the success you've had with the Citizens takeout, was that covering the benefit or the better experience? Speaker 200:19:48The other item is the loss ratio on the business we've assumed is better than we anticipated. Speaker 700:19:54All right. Yes, that was Speaker 200:19:56it. And that's we've added that $250,000,000 of premium with almost no added expenses. Speaker 700:20:05Exactly. Okay. All right. Thank you very much. Speaker 300:20:09Thanks, Mark. Operator00:20:16Your next question is coming from Matt Carletti with Citizens JMP. Please proceed with your question. Your line is live. Speaker 600:20:23Thanks. Good afternoon. Speaker 300:20:26Hi, Matt. Speaker 600:20:26Good afternoon. Parrish, when you talk about looking forward and opportunities to double, triple the size of the company? As you kind of hit those milestones, how do you view HCI kind of being similar or different? And I guess where I'm going with this is more geography than anything else. Do you how much opportunity you consider continue to see in Florida? Speaker 600:20:52Is there a certain market share at which you feel like you've got enough of the market? Or do you kind of see Florida growing in lockstep with the rest of the country and not changing much you disguise being bigger? Speaker 400:21:06Matt, if I was speaking just geography wise, right? When we talk about the 150,000,000,000 dollars probably about $20,000,000,000 is in Florida, yes. So plenty of room to grow there. And that's obviously right in our backyard and that opportunity is there. In the rest of the country, the other $130,000,000,000 a big chunk of it in Texas, chunk of it in California, etcetera, right? Speaker 400:21:34And all of these markets are going through their stress. Just read any of the industry press and you'll see it. I think all of those markets will eventually stabilize out at much higher numbers. And at some point, there will be an opportunity. How quickly that takes, we can be patient to when it actually happens. Speaker 400:21:57So we're just setting ourselves up. We're not handicapping as to when California will become an opportunity or when Oklahoma will become an opportunity. We're just sitting here patiently waiting, but when it does when they do become an opportunity is when we will jump in, yes. Speaker 700:22:15Yes. And how do you Speaker 600:22:17think about, you talked a bit in your comments and in the press release about the leverage that the technology provides. How do you think about, you become, say, twice the size or 3 times the size? Like is there a certain expense ratio you believe you can operate or a certain spread better than kind of what the market is? Speaker 400:22:42Matt, I think we think of it in a slightly different context, but just to sort of pull this, right? So if you imagine that the first $1,000,000,000 and these are the numbers, yes? When we write the second $1,000,000,000 right, losses will go up proportionately because you double the business, you might end up with a similar number. Agent commissions will probably double up as well. But all the other kinds of corporate overhead, other expenses, right, those will not double up. Speaker 400:23:15They will increase somewhat, but it's very easy to see that they will not double up. And that's where I think the leverage increases. There will be some additional expense because it won't be 0, but it's we just added $280,000,000 of premium, almost $300,000,000 of premium and we've hardly had any dollar increase in operating expenses. That's where that leverage is coming from, yes? Speaker 700:23:39Yes. Speaker 400:23:40And the automation is just beginning, yes? Speaker 700:23:43Yes. Yes. Speaker 600:23:45Great. And then if I could just a couple, I guess, one numbers question, one maybe numbers. You mentioned Q1 had a little weather to it and that's maybe why you're like a point or fraction of a point higher on gross loss ratio. I know it's only about halfway through the quarter, but any early insights on Q2? Is it looking normal, looking active, just from what you guys see? Speaker 300:24:09So far, it looks pretty normal, nothing unusual at this point in April. Speaker 600:24:15Okay, great. And the last one, just numbers. Do you have net written premiums consolidated handy? Speaker 300:24:21Yes, 187,000,000 Speaker 600:24:25dollars Wonderful. All right. Thanks very much. Appreciate it. Speaker 300:24:28All right. Thanks, Matt. Speaker 400:24:31Hey, Matt, I think about a question from before. The other thing by the way and this is why I'm so excited in my what I was saying in my prepared remarks, right. We've long talked about technology and in personal lines and homeowners policies and that kind of thing. The interesting thing is in getting core up and running, we suddenly realize how much of our technology platform, right, speeds up time to market of a new line of business. Commercial residential is different to residential, yes. Speaker 400:25:10And it has opened our eyes that this platform can be used not only in different geographies, but also in different lines of business, right? You can go from residential to commercial, residential to why not go to commercial, etcetera, right? I'm not saying we're doing that today, but we're certainly looking at this platform could be used in lots of ways that we've never used it before because once it's successful, you can just add on to it. So that's what is creating that opportunity about maybe doubling or tripling. There is more here than just writing more policies, yes? Speaker 400:25:50Yes. That makes a lot of sense. Speaker 600:25:53Well, thank you and congrats on a really nice start to the year. Speaker 300:25:57Thank you. Operator00:25:59Your next question is coming from Michael Phillips again with Oppenheimer. Please proceed with your question. Your line is live. Speaker 500:26:06Hey, thanks. One more. Thanks for letting me back in. Kind of a follow-up to Mark, your comments about litigation propensity down around 35%. Can you remind us how are you handling your prior year loss PIPs and reserves given what you're seeing there for that propensity to come down? Speaker 300:26:24Yes, it's a good question. I mean, we've for all of the accident quarters prior, we've made assumptions about what we think the ultimate cost of loss cost will be for any of those accident quarters, and that includes assumptions that we've made for the number of lawsuits that we will ultimately get. And so, I mean, literally every quarter, we're updating that estimate of how many lawsuits we'll ultimately get. And what I would say is that things are developing for the older accident quarters prior to the legislative changes, things are developing pretty much as we expected them to be, nothing unusual. We didn't have any adverse development in the we didn't have any adverse development at all in the Q1. Speaker 300:27:18For the accident quarters after the legislative changes, we're still being we made selections that took into account the changes in legislation. We're still evaluating those as to whether we should potentially bring them down a little bit, but we haven't really done much of that yet. I mean, we'll have to we need a little bit more time to go by. So, the way those accident quarters are developing is we've got about 35 percent fewer lawsuits than we would have gotten in the old world, if you will, or in the old rules. And but we haven't reserved quite that optimistically, if that makes sense. Speaker 500:28:05No, it does. Yes. So you didn't reserve for a call it whatever the number, a 35% drop or I mean, if I find out the right number, but as you said, you built something in, but it wasn't to the level that you're currently seeing, right? Okay. Speaker 400:28:18Yes. Speaker 300:28:18I mean, we knew it was going to be better, but it's better than we thought it was going to be. So it's good. Speaker 400:28:30Michael, the other side of that is if you actually go back, we had stated that many a time that we expected the numbers to be better, but we didn't have enough evidence to book to the better number. So we've tended to be conservative in the quarter since the legislation got passed. But eventually, reality, whatever it is, will manifest itself. And I think Mark will at that point make appropriate adjustments. Speaker 500:29:01Okay, great. Thanks a lot guys. Speaker 300:29:05Thank you. Operator00:29:07At this time, this concludes our question and answer session. I would now like to turn the call back over to Paresh Patel who has a few closing remarks. Speaker 400:29:17On behalf of the entire management team, I would like to thank our shareholders, employees, agents, brokers and most importantly our policyholders for their continued support. Thank you. Operator00:29:34This does conclude today's conference call. You may now disconnect your phone lines and have a wonderful day. Thank you for your participation.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallHCI Group Q1 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) HCI Group Earnings HeadlinesZacks.com featured highlights include Heritage Insurance, Marex, Kingstone, ANI Pharmaceuticals and HCIApril 24, 2025 | theglobeandmail.comHCI Group Declares Quarterly Cash DividendApril 24, 2025 | globenewswire.comFeds Just Admitted It—They Can Take Your CashThe Government Just Said Your Money Isn't Yours That's right—According to the DOJ, YOUR hard-earned money isn't legally yours. Now, think your savings are safe? Think again.May 6, 2025 | Priority Gold (Ad)HCI Group Sets First Quarter 2025 Earnings Call for Thursday, May 8, 2025, at 4:45 p.m. ETApril 22, 2025 | globenewswire.comHCI Group Sets 2025 Annual Shareholders Meeting and Record DateApril 21, 2025 | globenewswire.comThis ‘Strong Buy’ Stock Is Closing In on News HighsApril 16, 2025 | msn.comSee More HCI Group Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like HCI Group? Sign up for Earnings360's daily newsletter to receive timely earnings updates on HCI Group and other key companies, straight to your email. Email Address About HCI GroupHCI Group (NYSE:HCI), together with its subsidiaries, engages in the property and casualty insurance, insurance management, reinsurance, real estate, and information technology businesses in Florida. It provides residential insurance products, such as homeowners, fire, flood, and wind-only insurance to homeowners, condominium owners, and tenants for properties, as well as offers reinsurance programs. The company also owns and operates waterfront properties and retail shopping centers, and an office building, as well as commercial properties for investment purposes. In addition, it designs and develops web-based applications and products for mobile devices, including SAMS, an online policy administration platform; Harmony, a policy administration platform; ClaimColony, an end-to-end claims management platform; and AtlasViewer, a mapping and data visualization platform. The company was formerly known as Homeowners Choice, Inc. and changed its name to HCI Group, Inc. in May 2013. HCI Group, Inc. was incorporated in 2006 and is headquartered in Tampa, Florida.View HCI Group ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Palantir Stock Drops Despite Stellar Earnings: What's Next?Is Reddit Stock a Buy, Sell, or Hold After Earnings Release?Warning or Opportunity After Super Micro Computer's EarningsAmazon Earnings: 2 Reasons to Love It, 1 Reason to Be CautiousRocket Lab Braces for Q1 Earnings Amid Soaring ExpectationsMeta Takes A Bow With Q1 Earnings - Watch For Tariff Impact in Q2Palantir Earnings: 1 Bullish Signal and 1 Area of Concern Upcoming Earnings Fortinet (5/7/2025)ARM (5/7/2025)AppLovin (5/7/2025)MercadoLibre (5/7/2025)Lloyds Banking Group (5/7/2025)Manulife Financial (5/7/2025)Novo Nordisk A/S (5/7/2025)Uber Technologies (5/7/2025)Johnson Controls International (5/7/2025)Walt Disney (5/7/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 8 speakers on the call. Operator00:00:00Good afternoon, and welcome to HCI Group's First Quarter 20 24 Earnings Call. My name is Kelly, and I will be your conference operator. Before we begin today's call, I would like to remind everyone that this conference call is being recorded and will be available for replay through June 7, 2024, starting later today. The call is also being broadcast live via webcast and available via webcast replay until May 8, 2025, on the Investor Information section of HEI Group's website, www.heigroup.com. I would now like to turn the call over to Matt Glover, Gateway Investor Relations. Operator00:00:42Matt, please go ahead. Speaker 100:00:44Thank you, Kelly, and good afternoon, everyone. Welcome to HCI Group's Q1 2024 Earnings Call. On today's call is Karen Coleman, HCI's Chief Operating Officer Mark Armsworth, HCI's Chief Financial Officer and Paresh Patel, HCI's Chairman and Chief Executive Officer. Following Karen's operational update, Mark will review our financial performance for the Q1 of 2024 and then Paresh will provide a strategic update. To access today's webcast, please visit the Investor Information section of our corporate website at www.hcigroup.com. Speaker 100:01:18Before we begin, I would like to take the opportunity to remind our listeners that today's presentation in response to questions may contain forward looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. Words such as anticipate, estimate, expect, intend, plan and project and other similar words and expressions are intended to signify forward looking statements. Forward looking statements are not guarantees of future results and conditions, but rather are subject to various risks and uncertainties. Some of these risks and uncertainties are identified in the company's filings with the Securities and Exchange Commission. Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on the company's business, financial conditions and results of operations. Speaker 100:02:00HCI Group disclaims all the obligations to update any forward looking statements. Now with that, I would like to turn the call over to Karen Goldman, Chief Operating Officer. Karen? Speaker 200:02:09Thank you, Matt, and welcome, everyone. In the Q1, HCI Group reported pretax income of $77,400,000 and earnings per share of $3.81 Similar to my comments last quarter, each business unit made a positive contribution to our results, including another quarter of Homeowners Choice and TypTap both being solidly profitable. In force premiums grew in the Q1 and remained above $1,000,000,000 We reported another quarter of improvement in our underwriting results. Despite modest weather losses in the quarter, our gross loss ratio improved to 31% compared to 34% in the prior year's quarter. HCI continued to deliver on its commitment to shareholders, paying a dividend of $0.40 per share, our 54th consecutive quarterly dividend. Speaker 200:02:59Also in the quarter, we completed our first assumption at condo owners reciprocal exchange or as we call it core, which totaled $40,000,000 of in force premium. Following quarter end, Core completed a second assumption in April, which brings total in force premium to $55,000,000 Before I turn it over to Mark, I wanted to provide a quick update on the business that Homeowners Choice and TypTap has assumed from Citizens since November 2023. Overall, the power of the technology we built is showing its value and we've seen results exceed our expectations. We were able to evaluate Citizens' entire portfolio and select the 70,000 policies that best met our underwriting standards. So far, what we have observed is we were able to offer the majority of policyholders a renewal offer that was comparable to or less than if they had stayed with Citizens. Speaker 200:03:52We've retained more policyholders than we had expected. The loss ratio in the business we've assumed is better than anticipated, and we've added more than $250,000,000 of premiums in a few months with almost no added expense. Now, I'll turn it over to Mark to provide more details on our financials. Speaker 300:04:11Thanks, Karen. So as Karen mentioned, this was another good quarter for the company. Pretax income was just over $77,000,000 and diluted earnings per share were $3.81 These results are being driven by the same positive trends we've been discussing for a while, premium growth, higher investment income, better loss trends and declining expense ratios. Gross premiums earned were 42% higher than the same quarter last year, driven by growth in Florida. Earned premium includes $67,000,000 of premium assumed from Citizens, of which $3,600,000 relates to core, which I'll talk about in a minute. Speaker 300:04:52Investment income of $14,000,000 this quarter was about 40% higher than the Q4 last year, continuing the trend of higher investment income each consecutive quarter, driven by higher cash and investment balances combined with higher rates. As we mentioned on the last call, we are starting to lock in some of the higher rates by strategically adding term to our bond portfolio. We recently purchased $170,000,000 of 2 year treasuries at just under 5%. The consolidated gross loss ratio this quarter was 31%, down from 33.6% in the same quarter last year. When the legislative changes were announced in 2022, we expected the gross loss ratio to come down to around 30%, which it has. Speaker 300:05:39The loss ratio was slightly higher than in Q4 because as Karen mentioned, we had some weather this quarter. Maybe more important, the positive loss trends we've been discussing for over a year now have continued. As an example, litigation propensity for the number of lawsuits for any given number of claims is 35% lower than it was before the legislative changes took effect. I mentioned declining expense ratios in my introduction. Labor and operating expense as a percentage of gross premiums earned have been declining with each consecutive quarter. Speaker 300:06:14Why? Because of our operational leverage. In the past 12 months, we've added more than $300,000,000 of premium and added only a handful of people. Along with the lower loss ratio, this helps lead to a lower combined ratio, which was around 70% in the Q4 last year and just under 67% this quarter. This, of course, is being impacted by the Citizens' assumptions for which we have limited reinsurance and policy acquisition expenses. Speaker 300:06:43But once these normalize, we expect the combined ratio to be in the low to mid-80s, which is indicative of a very healthy insurance company and reflects the operational efficiencies we've generated with our technology platform in TypTap. Before I move to the balance sheet, I wanted to mention one more thing in the income statement. As Karen mentioned, we recently started Core, which is a new operating model for us in that we only administer the policies. Even though we do not own the underwriter, we are required to consolidate its income statement into ours. That means consolidated premiums include core premiums, consolidated reinsurance includes core reinsurance and the same for loss expense and policy acquisition expense. Speaker 300:07:26Then, of course, there's an adjustment to net income for any economic gains or losses, which are not ours. In order for a reader to be able to see the impact of Core, we now show it separately in our segmented financial information in the 10 Q. Now to the balance sheet, which continues to improve, driven by profitability, debt management and capital management. You may recall we recently completed a number of capital transactions and when combined with growing profitability, the result is a much stronger balance sheet. In the last 12 months, consolidated cash and investments have gone up by $340,000,000 Holding company liquidity has grown by $30,000,000 Debt has dropped by more than $60,000,000 The debt to cap ratio has declined from 62% to 37%. Speaker 300:08:17Shareholder equity has more than doubled to $395,000,000 And lastly, book value per share has gone up from just under $21 per share to over $38 per share. In summary, this was another great quarter for the company. Revenues up, all of our expense ratios are down, and the balance sheet has continued to strengthen. And with that, I'll hand it over to Paresh. Speaker 400:08:43Thank you, Mark. As highlighted by Cara and Mark's comments, HCI posted outstanding results in the Q1. This is because of our technology. And it is not just a talking point, it is driving our operational capabilities as well as our financial results. And even though we've grown to over $1,000,000,000 of in force premium, this is just a fraction of the $150,000,000,000 homeowners premium market across the U. Speaker 400:09:13S. So there is still plenty of room for growth. But more interesting is something new that we are noticing. Let me elaborate. We have added 70,000 new customers across Homeowners Choice and Tipta. Speaker 400:09:29In addition to that, we've added over 400 condo association policies at Core. The process was seamless because we have the platform to efficiently onboard these policies and as we've demonstrated, we can do it profitably. But we're also noticing that as these policyholders come up for renewal, they are staying with us in ever greater numbers. This is true across Homeowners Choice, TypTap and Core. Furthermore, we have seen strong interest from others to also join. Speaker 400:10:06Our phones have been ringing with prospective customers interested in getting a policy from 1 of the HCI Group of Companies. And it extends even further than that. We're also hearing from agents, brokers and investors asking if we can do more. So in summary, the opportunity that is unfolding in front of us isn't to add some incremental policies, it is much bigger than that. We are looking to see how we can double or triple the size of the business. Speaker 400:10:39We think large numbers of policies are out there still searching for a better solution. And this is just the beginning. There is a growing sense that these trends are expanding throughout the country. And we can use our technology platforms to capture the various opportunities out there in the market as they arise. But as always, we will it will be done in our typical prudent fashion and we are setting ourselves up to be ready to take advantage as these opportunities present themselves. Speaker 400:11:12With that, I will turn it over for questions. Operator00:11:33Your first question is coming from Michael Phillips with Oppenheimer. Please proceed with your question. Your line is live. Speaker 500:11:40Thanks. Good afternoon, everybody. First question, Mark, when you mentioned combined ratio expectations, you said low to mid-80s. What timeframe? Was that this year or just kind of was it a longer term timeframe? Speaker 300:11:52No, I mean this year. Yes, like now. Speaker 400:11:55Okay. Speaker 300:11:55I mean, the point was, it's obviously significantly lower than that right now. But once we normalize in the toward the end of the second quarter with reinsurance and PAC for Citizens policies, that's our expectation for combined ratio like the second half of the year. Speaker 500:12:18Okay, great. Thank you. And then, I guess just curious how I mean you guys reinsurance renewal is coming up pretty soon. How do you think about that given the big growth from Citizens? I mean, I don't know if it's in one direction, your most of your 2024 growth is going to be in Florida, so maybe more concentrated than you otherwise would have been. Speaker 500:12:37So if you buy more or you're just bigger companies, so you need less? So just how are you thinking about the need for reinsurance relative to the prior years because of Citizens? Speaker 400:12:46Hey, Michael, it's Parrish. Look, we have managed this business to grow it from around $50,000,000 of premium back in 2,007 all the way to what it is now. So as the business grows and shrinks, which it has done occasionally as well, we buy an appropriate amount of reinsurance. So yes, the business has grown, but we're already in the market trying to buy an appropriate tower for the upcoming wind season. We are right in the middle of those negotiations and everything else. Speaker 400:13:18So the two items that are there is, we are buying an appropriate size tower for the appropriate size business. The only item that is not finished yet is what will the cost of that reinsurance be. But one presumes because you're buying a lot more quantity, it might be the overall dollars will go up, but it's a question of will it go up as a percentage of revenue, yes. Speaker 500:13:42All right. Okay, good. Yes, thank you. And then I guess lastly, Paresh, you mentioned the phone calls that are coming in. You're not looking to grow the company policy by policy, but maybe looking Speaker 400:13:52to do more stuff. Speaker 500:13:54I guess, are you also considering are you getting any calls and would you consider maybe being fronting for other homeowners companies as an already right business that don't have your technology and front for them as you expand outside of Florida and to more nationwide? Would that be an option? Speaker 400:14:10Yes. There are a number of options that people have approached us with, and obviously, we're evaluating them, including people wanting us to buy books of business or buy small carriers kind of thing. So there's a broad range of options that are unfolding in front of us. Obviously, we're trying to make sure we are prudent as to where we deploy our technology so that it has maximum long term value. But fronting could be an example as well, yeah? Speaker 500:14:38Okay. Yes, sure. Thank you. Last one for now, just on numbers question. You had mentioned the in force premium from core April to $55,000,000 I think before you said you were torrying around $75,000,000 Is that still the case for core? Speaker 400:14:54Ultimately, yes. Speaker 500:14:57And that's this year, correct, right? Speaker 600:14:59Yes. Okay. Speaker 300:15:01Yes, good. Speaker 400:15:02I think that you brought up for look, I also want to point out how amazing this is, right? Core had 0 revenue on January 1 this year. It's May 8, less than 5.5 months later and you're already up $55,000,000 as we had sort of laid out that we will be doing this, right? This is how easily and seamlessly we can add to this, yes? Speaker 700:15:30Yes? Operator00:15:35Your next question is coming from Mark Hughes with Truist. Speaker 600:15:45Hi, Mark. Speaker 700:15:46The low to mid-80s combined ratio, just to be clear, that's is that gross or net earned? Speaker 300:15:56Net earned. Speaker 700:15:59That's on net earned? Speaker 300:16:02Yes. Speaker 700:16:03Okay. And then the cash at the holdco at this point? Speaker 300:16:08So holding company liquidity at the end of Q1 is about 220,000,000 Speaker 700:16:18dollars And then did you give earned premium number for the takeout this quarter? Speaker 300:16:27So, what I had said was the in earned premium, there is $67,000,000 of that relates to Citizens' assumptions. And of that 67, dollars 3,600,000 of it is core. Speaker 700:16:46Okay. And Speaker 300:16:46that's of course some of that is direct, some of that is assumed, but in Q1, most of that is assumed, right? Yes. Speaker 700:16:56And then how do you feel about the go ahead. Speaker 300:17:01No, no, sorry, I was coughing. Sorry about that. Speaker 500:17:05Okay. How Speaker 700:17:07do you feel about the takeout opportunity? Are there still attractive policies after what you've done and others? How do you feel about the potential, say, next time around? Speaker 400:17:24Hey, Mark, it's Paresh. As we had said previously, there's still 1,100,000 policies in Citizens, right? We can clearly see using our technology that a large number of them are green, a large number of them are red, right? So there is still an opportunity there, right? It's just a question of when to go after them and what is the most prudent fashion in which to do so, yes? Speaker 700:17:53Yes. And then is there a written number associated with the takeout? You obviously just gave the earned, but is there a written just for referencing? Speaker 300:18:12For written? Yes. So, there is about the total assumed written in Q1 was about $43,000,000 Speaker 700:18:27And that was was that already incorporated into the homeowner choice in TypTap and Core? Speaker 300:18:40Yes, I mean, I can give it to you by underwriter if you need it that way. But of that yes, of that $43.19 of that was core. Speaker 400:18:51And Mark, from previous conversations, you know it works slightly differently with Citizens because your written premium is only the unearned premium that you're assuming. So it sort of comes in a lumpy fashion until we do renewal and get them onto our paper, yes. Speaker 700:19:08Yes. And when you're talking about the success you're having with the Citizens Takeout, I think you said the renewals are coming in better than expected. Your pricing generally, you're able to offer pricing that's in line or less for renewal. Was there another aspect of that? Again, as you're describing the success you've had with the Citizens takeout, was that covering the benefit or the better experience? Speaker 200:19:48The other item is the loss ratio on the business we've assumed is better than we anticipated. Speaker 700:19:54All right. Yes, that was Speaker 200:19:56it. And that's we've added that $250,000,000 of premium with almost no added expenses. Speaker 700:20:05Exactly. Okay. All right. Thank you very much. Speaker 300:20:09Thanks, Mark. Operator00:20:16Your next question is coming from Matt Carletti with Citizens JMP. Please proceed with your question. Your line is live. Speaker 600:20:23Thanks. Good afternoon. Speaker 300:20:26Hi, Matt. Speaker 600:20:26Good afternoon. Parrish, when you talk about looking forward and opportunities to double, triple the size of the company? As you kind of hit those milestones, how do you view HCI kind of being similar or different? And I guess where I'm going with this is more geography than anything else. Do you how much opportunity you consider continue to see in Florida? Speaker 600:20:52Is there a certain market share at which you feel like you've got enough of the market? Or do you kind of see Florida growing in lockstep with the rest of the country and not changing much you disguise being bigger? Speaker 400:21:06Matt, if I was speaking just geography wise, right? When we talk about the 150,000,000,000 dollars probably about $20,000,000,000 is in Florida, yes. So plenty of room to grow there. And that's obviously right in our backyard and that opportunity is there. In the rest of the country, the other $130,000,000,000 a big chunk of it in Texas, chunk of it in California, etcetera, right? Speaker 400:21:34And all of these markets are going through their stress. Just read any of the industry press and you'll see it. I think all of those markets will eventually stabilize out at much higher numbers. And at some point, there will be an opportunity. How quickly that takes, we can be patient to when it actually happens. Speaker 400:21:57So we're just setting ourselves up. We're not handicapping as to when California will become an opportunity or when Oklahoma will become an opportunity. We're just sitting here patiently waiting, but when it does when they do become an opportunity is when we will jump in, yes. Speaker 700:22:15Yes. And how do you Speaker 600:22:17think about, you talked a bit in your comments and in the press release about the leverage that the technology provides. How do you think about, you become, say, twice the size or 3 times the size? Like is there a certain expense ratio you believe you can operate or a certain spread better than kind of what the market is? Speaker 400:22:42Matt, I think we think of it in a slightly different context, but just to sort of pull this, right? So if you imagine that the first $1,000,000,000 and these are the numbers, yes? When we write the second $1,000,000,000 right, losses will go up proportionately because you double the business, you might end up with a similar number. Agent commissions will probably double up as well. But all the other kinds of corporate overhead, other expenses, right, those will not double up. Speaker 400:23:15They will increase somewhat, but it's very easy to see that they will not double up. And that's where I think the leverage increases. There will be some additional expense because it won't be 0, but it's we just added $280,000,000 of premium, almost $300,000,000 of premium and we've hardly had any dollar increase in operating expenses. That's where that leverage is coming from, yes? Speaker 700:23:39Yes. Speaker 400:23:40And the automation is just beginning, yes? Speaker 700:23:43Yes. Yes. Speaker 600:23:45Great. And then if I could just a couple, I guess, one numbers question, one maybe numbers. You mentioned Q1 had a little weather to it and that's maybe why you're like a point or fraction of a point higher on gross loss ratio. I know it's only about halfway through the quarter, but any early insights on Q2? Is it looking normal, looking active, just from what you guys see? Speaker 300:24:09So far, it looks pretty normal, nothing unusual at this point in April. Speaker 600:24:15Okay, great. And the last one, just numbers. Do you have net written premiums consolidated handy? Speaker 300:24:21Yes, 187,000,000 Speaker 600:24:25dollars Wonderful. All right. Thanks very much. Appreciate it. Speaker 300:24:28All right. Thanks, Matt. Speaker 400:24:31Hey, Matt, I think about a question from before. The other thing by the way and this is why I'm so excited in my what I was saying in my prepared remarks, right. We've long talked about technology and in personal lines and homeowners policies and that kind of thing. The interesting thing is in getting core up and running, we suddenly realize how much of our technology platform, right, speeds up time to market of a new line of business. Commercial residential is different to residential, yes. Speaker 400:25:10And it has opened our eyes that this platform can be used not only in different geographies, but also in different lines of business, right? You can go from residential to commercial, residential to why not go to commercial, etcetera, right? I'm not saying we're doing that today, but we're certainly looking at this platform could be used in lots of ways that we've never used it before because once it's successful, you can just add on to it. So that's what is creating that opportunity about maybe doubling or tripling. There is more here than just writing more policies, yes? Speaker 400:25:50Yes. That makes a lot of sense. Speaker 600:25:53Well, thank you and congrats on a really nice start to the year. Speaker 300:25:57Thank you. Operator00:25:59Your next question is coming from Michael Phillips again with Oppenheimer. Please proceed with your question. Your line is live. Speaker 500:26:06Hey, thanks. One more. Thanks for letting me back in. Kind of a follow-up to Mark, your comments about litigation propensity down around 35%. Can you remind us how are you handling your prior year loss PIPs and reserves given what you're seeing there for that propensity to come down? Speaker 300:26:24Yes, it's a good question. I mean, we've for all of the accident quarters prior, we've made assumptions about what we think the ultimate cost of loss cost will be for any of those accident quarters, and that includes assumptions that we've made for the number of lawsuits that we will ultimately get. And so, I mean, literally every quarter, we're updating that estimate of how many lawsuits we'll ultimately get. And what I would say is that things are developing for the older accident quarters prior to the legislative changes, things are developing pretty much as we expected them to be, nothing unusual. We didn't have any adverse development in the we didn't have any adverse development at all in the Q1. Speaker 300:27:18For the accident quarters after the legislative changes, we're still being we made selections that took into account the changes in legislation. We're still evaluating those as to whether we should potentially bring them down a little bit, but we haven't really done much of that yet. I mean, we'll have to we need a little bit more time to go by. So, the way those accident quarters are developing is we've got about 35 percent fewer lawsuits than we would have gotten in the old world, if you will, or in the old rules. And but we haven't reserved quite that optimistically, if that makes sense. Speaker 500:28:05No, it does. Yes. So you didn't reserve for a call it whatever the number, a 35% drop or I mean, if I find out the right number, but as you said, you built something in, but it wasn't to the level that you're currently seeing, right? Okay. Speaker 400:28:18Yes. Speaker 300:28:18I mean, we knew it was going to be better, but it's better than we thought it was going to be. So it's good. Speaker 400:28:30Michael, the other side of that is if you actually go back, we had stated that many a time that we expected the numbers to be better, but we didn't have enough evidence to book to the better number. So we've tended to be conservative in the quarter since the legislation got passed. But eventually, reality, whatever it is, will manifest itself. And I think Mark will at that point make appropriate adjustments. Speaker 500:29:01Okay, great. Thanks a lot guys. Speaker 300:29:05Thank you. Operator00:29:07At this time, this concludes our question and answer session. I would now like to turn the call back over to Paresh Patel who has a few closing remarks. Speaker 400:29:17On behalf of the entire management team, I would like to thank our shareholders, employees, agents, brokers and most importantly our policyholders for their continued support. Thank you. Operator00:29:34This does conclude today's conference call. You may now disconnect your phone lines and have a wonderful day. Thank you for your participation.Read morePowered by