HCI Group Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 27, 2025
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Operator

Good afternoon, and welcome to HCI Group's Fourth Quarter twenty twenty four Earnings Call. My name is Ali, and I will be your conference operator. At this time, all participants will be in a listen only mode. 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 03/27/2025, starting later today. The call is also being broadcast live via webcast and available via webcast replay until 02/27/2026 on the Investor Information section of HCI Group's website at www.hcigroup.com.

Operator

I would now like to turn the call over to Matt Glover, Gateway Investor Relations. Matt, please proceed.

Matt Glover
Senior MD at Gateway Investor Relations

Thank you, and good afternoon. Welcome to HCI Group's fourth quarter twenty twenty four earnings call. On today's call is Karen Coleman, HCI's Chief Operating Officer Mark Harmsworth, HCI's Chief Financial Officer and Parash Patel, HCI's Chairman and Chief Executive Officer. Following Karen's operational update, Mark will review our financial performance for the fourth quarter of twenty twenty four and then Parash will provide a strategic update. To access today's webcast, please visit the Investor Information section of our corporate website at www.hcigroup.com.

Matt Glover
Senior MD at Gateway Investor Relations

Before we begin, I'd like to take the opportunity to remind our listeners that today's presentation in response to the 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, 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. Given any risks or uncertainties developed into actual events, these developments could have material adverse effects on the company's business, financial conditions and results of operations.

Matt Glover
Senior MD at Gateway Investor Relations

HCI Group disclaims all of the obligations to update any forward looking statements. Now with that, I'd like to turn the call over to Karen Coleman, Chief Operating Officer. Karen?

Karin Coleman
Karin Coleman
President of Homeowners Choice Property & Casualty Insurance Company, Inc., COO & Director at HCI Group

Thank you, Matt, and welcome, everyone. At the beginning of the fourth quarter, Hurricane Milton made landfall in Florida as a Category three hurricane. Losses from this event were significant and our hearts go out to everyone impacted. We continue to work with our policyholders to pay claims and help them rebuild their lives. With that said, our results continue to demonstrate the resiliency of our business model.

Karin Coleman
Karin Coleman
President of Homeowners Choice Property & Casualty Insurance Company, Inc., COO & Director at HCI Group

Mark will walk you through the numbers, but I think it's important to highlight some highlight several notable things that HCI accomplished in 2024. We handled over 22,600 claims during the year with over half of them coming from hurricanes Debbie, Helene and Milton. Ultimately, we expect these three events will result in HCI paying over $500,000,000 to help Florida rebuild. Despite this, we held our rates steady in Florida and we plan to continue to do so in 2025. Our customers appreciate that we are a steady partner and the retention rate of our existing customers remains strong at approximately 90%.

Karin Coleman
Karin Coleman
President of Homeowners Choice Property & Casualty Insurance Company, Inc., COO & Director at HCI Group

During the year, we offered over 68,000 citizens' policyholders a private market option and nearly 53,000 policyholders moved to HCI. This implies a blended success rate across our different insurance companies of 77%. We started a new insurance company, Condo Owners Reciprocal Exchange, which are grew to approximately 70,000,000 of in force premium. Across our different growth initiatives, we increased our policies in force from $247,000 to more than $272,000 and our in force premium grew 22% to over $1,200,000,000 This was accomplished all while reducing our underlying net combined ratio by 10 percentage points. In the fourth quarter, HCI continued to deliver on its commitment to return value to our shareholders by paying a dividend of $0.4 per share, our fifty seventh consecutive quarterly dividend.

Karin Coleman
Karin Coleman
President of Homeowners Choice Property & Casualty Insurance Company, Inc., COO & Director at HCI Group

We were able to achieve all of this because we have a solid management team with proven successes backed by best in class technology. HEI has been able to consistently grow its top line and bottom line and we look forward to continuing on this path. Now I'll turn it over to Mark to provide more details on our financial results.

Mark Harmsworth
Mark Harmsworth
Chief Financial Officer at HCI Group

Thanks, Karen. On our last earnings call, we detailed the expected impact of Hurricane Milton on the fourth quarter and said we expected underlying earnings to mitigate much of it. As expected, the net impact of Hurricane Milton was $128,000,000 including $78,000,000 of net loss expense and $50,000,000 for the reversal of benefits under a multiyear reinsurance agreement. And including that impact, pre tax income in the fourth quarter was $5,900,000 and diluted earnings per share were $0.23 For the full year, even with the impact of three hurricanes, pretax income was $173,000,000 and diluted earnings per share were $8.89 illustrating the strength of underlying earnings. There are a few reasons we've been able to grow underlying earnings over the past couple of years.

Mark Harmsworth
Mark Harmsworth
Chief Financial Officer at HCI Group

First, we've been adding policies and growing revenue without really adding a lot of operating expense driven by our technology and overall operational efficiency. Over the past two years, we've grown in force premiums by 50 and only added a handful of people. Second, our loss ratio has been steadily declining. When legislative changes were introduced in Florida, we expected that the loss ratio would drop from 40% to 30% and that happened. In 2024, it dropped even further.

Mark Harmsworth
Mark Harmsworth
Chief Financial Officer at HCI Group

For the full year 2024, our non cat growth loss ratio was less than 25%. The combined impact of these two things, strong operating leverage and a lower loss ratio, have resulted in a noteworthy improvement in our combined ratio. Our normalized combined ratio is now about 75. While the underlying combined ratio was better than that in the fourth quarter and should be again for the first half of twenty twenty five, we expect the combined ratio to be about 75% once reinsurance and commissions kick in for the recent Citizens assumptions. There is one more positive trend enhancing underlying earnings beyond what's happening with the combined ratio.

Mark Harmsworth
Mark Harmsworth
Chief Financial Officer at HCI Group

Investment income has doubled over the last couple of years through a combination of higher investment balances and higher rates. Because we kept our investments short term when rates were low, we have been able to capitalize as rates have increased. The impact of all of these factors has improved underlying earnings to the point where we can be profitable and generate capital in an active storm year like 2024. Now just a couple of things on the balance sheet. Even with three hurricanes and paying $1.6 per share in dividends, book value increased by almost $9 per share from $33.36 at the start of the year to $42.1 at the end of the year.

Mark Harmsworth
Mark Harmsworth
Chief Financial Officer at HCI Group

Debt to cap has also improved materially during the year. We started the year with a debt to cap ratio of 50% and ended the year at 34%. During 2024, we reduced consolidated debt by $80,000,000 grew underwriter surplus by 50% and holding company liquidity is still over $200,000,000 at the end of the year. In summary, 2024 was a strong year for the company despite an active storm season and we are well positioned for the future. Revenue is growing, underlying earnings are increasing and the balance sheet continues to strengthen.

Mark Harmsworth
Mark Harmsworth
Chief Financial Officer at HCI Group

And with that, I'll hand it over to Parrish.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

Thank you, Mark. As Mark and Karen highlighted in their comments, HCI Group ended the year on a very positive note. Overall, we grew gross premiums earned by over 40% for the full year, while also increasing profitability. The combination of our best in class technology and the ongoing impact of reforms in Florida has contributed to this strong outcome. Looking to the future, continuing on our current trajectory and hopefully without the hurricanes would be very impressive.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

And in the short term, we intend to do just that. Our new reciprocal our new reciprocal insurance company, TeoRo, just became operational a few days ago and we expect it to be an additional driver of growth. But we see an even bigger opportunity. What Karen Marks' comments highlighted was that our technology has a proven track record and it's a game changer. The technology currently supports over $1,200,000,000 of premium across the companies controlled by HCI Group.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

But HCI Group represents less than 1% of the total homeowners premium in The U. S. And given the increasing frequency and severity of catastrophe losses, we believe there is an opportunity to use our technology to drive a better underlying result for the other 99% of the market. So to that goal, we have set up a new structure that will consist of two distinct operating units. The first unit includes our four top performing insurance companies and our captive reinsurer.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

Additionally, this unit will include our operations in claims management and real estate. This group has its own dedicated team who will continue to focus on delivering strong underwriting results, creating a positive claims experience for our policyholders, while diligently managing risk and generating opportunistic income from our real estate portfolio. Our second operating unit includes our market leading technology platform and our insurance management operations. This unit helps empower insurers to develop to deliver better underwriting outcomes and optimize operational efficiencies. However, this unit does not include any insurance companies and therefore we felt it appropriate at this time to rename the unit from being Tip Tap Insurance Group to Exxio Group Inc.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

Exxio Group is an independently viable entity with solid profitability, strong cash flows, no immediate capital needs and more importantly no hurricane volatility. In 2024, Exio Group earned approximately $35,000,000 of pre tax income and we expect that number to grow significantly in 2025. Exo Group's technology has demonstrated its ability to navigate in a catastrophe prone world, while significantly enhancing the profitability of its customers, which are currently the four insurance carriers under the HCI umbrella. But the need for this technology is only growing. So to fully embrace this opportunity, we want to make Exo Group a standalone entity so that it can do the same thing for other insurance companies in other geographies.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

Same vision, same management team, but fewer restrictions at a much bigger market TAM. And therefore, we are evaluating a range of strategic alternatives with the assistance of outside advisors to take advantage of this upmarket opportunity. During this review, we intend to consider potential actions, solutions or structures that will unlock additional value for our shareholders. But we will not be entertaining a sale of the platform at this point. It's just too valuable.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

With that, I'll turn it over for questions.

Operator

Thank you. At this time, we will be conducting our question and answer session. You. Thank you. Our first question is coming from Matt Carletti with Citizens JMP.

Operator

Your line is live.

Matthew Carletti
Managing Director at Citizens JMP

Hey, thanks. Good afternoon.

Matthew Carletti
Managing Director at Citizens JMP

Parrish, maybe following up on kind of your commentary there about separating the groups. You've been talking for some time about how you view Florida as being kind of well ahead of the rest of the country in terms of dealing with catastrophic weather and changing climate and things like that. We got kind of a reminder of that in January with the fires in California. As we think about kind of opportunities outside Florida and your knowledge already in these kind of challenging areas, can you help us with how you might go about that? So if you use California as an example, should we expect to see HCI or any of the carriers at any point take on some risk there even if on an E and S basis or otherwise?

Matthew Carletti
Managing Director at Citizens JMP

Or would you look to use Exio Group as more the means to access an opportunity like that?

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

Great question, Matt. And look, speaking of the unfortunate events in California, and our hearts go out to all those people as well. What clearly California is in desperate need of is a solution that actually is financially viable and that can withstand what probably will be additional wildfires that will occur in the coming years and do it comfortably. We have just done that surviving three hurricanes in Florida. But in terms of the question as to how we would go approach in the market, it's a multifaceted idea.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

First things first is to make sure you have the technology that can do this, which we have clearly proven. Second part that we are which will now come across is at the right moment, it's a debate as to whether we do it just with an HCI Group company or we partner with somebody who's already in California or we do both, right. Part of the whole thing of this was to remove Exio Group from having to exclusive deal with one or the other or whatever. The technology is going to be there ready to go and it's just going to be a question of what is the best way of going to market with it. That's the flexibility I'm talking about in this separation that we're looking at.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

Does that help?

Matthew Carletti
Managing Director at Citizens JMP

It does, for sure. Next question just around takeout activity. We've seen kind of the Citizens numbers that get below $1,000,000 as there's been obviously an elevated amount of takeouts. Can you talk a little bit about, I'd say, one, kind of how you view that pool of 1,000,000 policies so that are left? And two, two, we saw the announcement of kind of tail row going live.

Matthew Carletti
Managing Director at Citizens JMP

Does having a reciprocal structure that can do takeouts kind of expand? Can you always talk about the green light policies that are in Citizens? Does it does it increase that number that there might be policies that don't fit ACI's balance sheet, but might fit a reciprocal structure?

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

Yes. So a lot of questions there. Starting with Citizens being just under 1,000,000 policies at this point. Yes, we continue to notice that there are still policies in there that we would consider green and would be worth depopulating. There is some flux in the portfolio at the moment because of the rate change that has just been approved by for the citizens going forward.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

That'll have some impact, but not as great as you would think. So overall, the citizen opportunity is still there. And let's just put this into perspective. We've grown the business by $200,000,000 or so by taking on about 50,000 policies in the fourth quarter. So the $50,000 60 thousand dollars 70 thousand dollars 80 thousand dollars 1 hundred thousand dollars policies, can we find them?

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

Absolutely. So that is there. The other thing with Tero and reciprocals and everything else, TayoRoe in its takeout just for as an item of note, did most of its assumption in Northern Florida. It's almost like complementary to TypTap. So as we're doing these things, we are getting more and more adept at it.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

And one of the other items of note in the comments Karen made about how many offers we made and how many people chose to come with us, it really highlights how well our technology is now working because we've got very efficient. We only ask people to join who we think will be interested and are likely to say yes. We don't waste picks on folks who will not likely join or will go somewhere else, etcetera, right. All of these efficiencies all build into what Mark is talking about, about operating leverage and being able to do this correctly. So, we've seen this go over and over and over again in 2024.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

So, if there's any doubt about our technology, the last twelve months really brings it home.

Matthew Carletti
Managing Director at Citizens JMP

Yes, for sure. That's very helpful. And then just one quick numbers question, if I could. The 37% gross loss ratio in the quarter, obviously there's Milton impact in there. Was there any favorable development impact in the loss numbers in the quarter?

Matthew Carletti
Managing Director at Citizens JMP

And if so, what would be kind of the accident year gross loss ratio without it or how much was it?

Mark Harmsworth
Mark Harmsworth
Chief Financial Officer at HCI Group

Yes. So, Hemat, it's Mark. So yes, there's about $24,500,000 worth of favorable development that's included in the Q4 number. About $5,000,000 of that relates to prior years and the other $19,000,000 20 million dollars relates to actually to prior quarters of twenty twenty four. In terms of the normalized loss ratio, if you will, and for the full year, it was the consolidated loss ratio full year normalized was 23.7 and in Q4 it was 19.5 I think.

Matthew Carletti
Managing Director at Citizens JMP

Great. Very helpful. Thank you very much for all the answers.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

Thank you.

Operator

Thank you. Our next question is coming from Michael Phillips with Oppenheimer. Your line is live.

Michael Phillips
Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.

Thanks. Good evening, everybody. I'll start off with just a follow-up to that last question, Mark, on the PYD. So $19,000,000 from the first three quarters of twenty twenty four. I guess, would that be I think it could be possibly two things.

Michael Phillips
Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.

It's you've talked about the litigation and how it's been favorable and getting you kept your reserves somewhat cushioned from that. Is that part of that recognizing some of that or is that just maybe some of the earlier tax that happened in the year? Maybe Helene or anything else?

Mark Harmsworth
Mark Harmsworth
Chief Financial Officer at HCI Group

No, it's I mean, it's a few things, right? I mean, it's largely driven by the fact that we make our initial selections and then watch the development and it was very clearly developing significantly better than we thought it would. Getting less lawsuits than we initially thought that was part of it. There's a lot of little things. Severity is a little bit lower than we initially thought it was going to be.

Mark Harmsworth
Mark Harmsworth
Chief Financial Officer at HCI Group

And also a little bit less of a claims tail than we thought. So everything moving in the same direction and very clear that it was considerably better than we expected it to be. And that quite frankly, we were going to be well above the actuaries range if we didn't bring our expense if we didn't bring our selections down for the first nine months of the year.

Michael Phillips
Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.

Okay. Thank you. So that makes it sound like it's more of the former of what I said in the latter. It's not so much any prior cats from 3Q, but it's more of better state, less litigation, better severity, right? Yes.

Michael Phillips
Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.

That's what you said. Yes. Okay. Okay. Thank you.

Michael Phillips
Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.

Parrish, on the two structures, I guess when you mentioned the much bigger TAM obviously for the second structure of your tech platform. Can you talk a little bit about that? Like what do you see as the TAM? Maybe not specific numbers, but happy to take that if you want, which is maybe qualify, how do you think of the TAM for that segment of the business?

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

Okay. So back to that $1,200,000,000 that's out there

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

that

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

HCI controls. Nationally, I think we spend about $140,000,000,000 or so, I might be off by a year or two, but about $140,000,000,000 in homeowners insurance premium is what's spent on an annualized basis. So like I said, we're around 1%. But more and more carriers are struggling, think of what's going on in California and all the stories coming out from the insurance carriers' perspective of trying to stay solvent, profitable in the light of those events. And little things come to mind, like what should the premium be, how should we do risk selection, how should we deploy our capital, so that when these events, which will continue to occur, we are not financially hurt that badly, right.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

And given that environment, we've been facing that for seventeen years and we've built technology that can do this really well. So the technology that we had, nobody wanted to or was thinking about it outside Florida because everybody had didn't have these kinds of catastrophe and disasters occurring before. Now they do, right. And if the premium under management on our platform, you've already seen the leverage we're getting just by it growing. Imagine it went from $1,200,000,000 to $2,500,000,000 or $5,000,000,000 5 billion dollars is by the time we get there will be about 4% market share throughout The U.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

S. Very, very small, but a huge opportunity. So that kind of gives you an idea as to the time we're looking at here. Does that help?

Michael Phillips
Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.

It does, yes. And in the first part of your answer, I think it sounds like you're referring to kind of the overall homeowners market of that's how your tech can help the market. So when you're TAM, you're referring to the size of the homeowners industry.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

Yes.

Michael Phillips
Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.

Well, your HCI is a small part of that. Okay, good. Thank you. I guess maybe one more for Mark. When you talked about that kind

Michael Phillips
Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.

of the I don't know what you call the adjustment of

Michael Phillips
Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.

the core law combined ratio, little bit better in the first half than 75% and maybe closer to 75% in the second half of the year. Make sure I heard that correctly first off. And then if I'm looking at the right numbers, if we can, the first half of twenty twenty four was around 67%. Is that am I comparing the same numbers that you're talking about,

Michael Phillips
Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.

Mark?

Mark Harmsworth
Mark Harmsworth
Chief Financial Officer at HCI Group

Yes. And to your question about 2025%, the 75% that I referred to as a normalized combined ratio, Think of that as Q3 and beyond next year, after on those Citizens assumptions, you've got full reinsurance in there, commissions on renewals, that type of thing. So as like the sort of fully loaded Q3 number, that's where the 75% number comes from. The reason it will be more likely in the mid-60s in the first half of the year is because again of that temporary impact of the Citizens assumptions where you've got premium coming in, you have lost expense obviously, but no reinsurance, no pack.

Mark Harmsworth
Mark Harmsworth
Chief Financial Officer at HCI Group

And so your combined ratio is just going lower. So that's how you get 60%, sixty five % in the first half of the year, 75% once that normalizes out. And by the way, the normalized combined ratio for the full year 2024 was about 72.5%, seventy three %. So does that help?

Michael Phillips
Managing Director and Insurance Analyst at Oppenheimer & Co. Inc.

Yes, that's perfect. Yes, thank you. Thanks, that's all I had. Appreciate it.

Mark Harmsworth
Mark Harmsworth
Chief Financial Officer at HCI Group

Thanks.

Operator

Thank you. Our next question is coming from Mark Hughes with Truist Securities. Your line is live.

Mark Hughes
Mark Hughes
Analyst at Truist Securities

Yes. Thank you. Good afternoon. Parash on IGZIO, I assume a good result for IGZIO at least to a start would be to have some sort of flagship or early customer if the idea here is you're going to use this technology to help other insurance companies, then step in that direction, it seems like it would really highlight the opportunity. What are the odds?

Mark Hughes
Mark Hughes
Analyst at Truist Securities

What's the chance? What's the visibility for that to happen in the near to medium term? And is that a right way to look at it?

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

Yes. Mark, I think you're right. It would help. The interesting thing of where we've developed these companies to is Exio, to my comments, is solidly profitable, no immediate needs of capital, no hurricane volatility and earnings are growing at rapid clip. All of these things are true with only having the four HCI Group controlled carriers as customers.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

So even if Exio doesn't get any new customers, just by the leverage and the things they're doing for their four existing carriers is going to give them a very it's going to create a very positive future for them, right. If you now set it up correctly, so you can expand to other catastrophe active states, California being obviously the one that comes to mind at the moment, Louisiana being another one. But if you start adding these states, Exio's future could be even brighter, right? And the beauty of what we're doing in separating this thing out, Exio's technology is needed in those places. HCI Group on the other hand may make different decisions as to whether it wants to operate in Texas or Louisiana or California, right.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

Now you're separating those two decisions. So while HCI Group, for example, may not want to operate in Texas, there are plenty of carriers in Texas who could use the help or right now in California who could use the help to underwrite the business better. So that's why we are making this separation, so that you're not limited to only helping capital that is beneficial to HCI Group.

Mark Hughes
Mark Hughes
Analyst at Truist Securities

But Could this involve fronting as well?

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

I don't necessarily know that again, we'll see how this evolves. But so far, things that we've never done, we've never done fronting before in the sense of where our technology has always had a much higher bar to clear than lots of other people who tout technology is that because so far every time we've done something, we've put our capital at risk and actually entirely our capital risk and not anybody else's. We have produced these results because we have been very, very mindful that the technology is going to produce a positive outcome for the capital, right. When you get into things like fronting, etcetera, you are more focused on, how shall I put this, distribution and financial engineering than actually underlying profitability, right. So as I'm talking this through, a different way of looking at it is HCI Group has been fronting Exio Group one hundred percent of the time.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

And Mark just gave you the numbers that this has resulted in, right? I'm sure there are lots of funding companies would like their clients to have these kinds of results. Yes?

Mark Hughes
Mark Hughes
Analyst at Truist Securities

Yes. Yes, I hear you. The fourth quarter, the very good gross loss ratio, any perspective, I think storms tend to knock down some attritional losses, you get some variability in the weather, all of that. How much do you think those other factors helped that loss ratio?

Mark Harmsworth
Mark Harmsworth
Chief Financial Officer at HCI Group

I mean, it might have helped Mark, it's Mark. It might have helped a bit, but I think if you look at claims frequency, which is a big driver obviously of the loss ratio, claim frequency is just coming down. It was 25% lower in 2023 than 2024. It was 12.5% lower in 2024 than 2023. And if you factor out weather, it's a little bit different, but not a lot.

Mark Harmsworth
Mark Harmsworth
Chief Financial Officer at HCI Group

I mean, even if you take weather out, claims frequency is coming down, litigation propensity is coming down, severity is going up, but just a bit. And it's all moving in the right direction and it's not it is not a weather phenomenon.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

And Marc, if I could add to that commentary about how things are going. We talked about the efficiency the technology is showing in terms of depopulating citizens, making sure we only pick policyholders who want to come with us and then stay with us. There's other aspect to it that technology also doing. When we did the depopulations in late 'twenty three, We clearly had we clearly understood the loss ratios of our existing business. We were a little bit concerned about how the takeout book would perform.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

And so I'm sure we I think Mark talked about it in quarters past. We were a little bit more conservative in our reserving for those takeout books. I think what the fourth quarter results and everything else have sort of started showing is those takeouts that we're doing are almost as good as the existing book that we already have in place, right. This is new phenomenon that we didn't originally a few years ago, we would have said could never happen, right?

Mark Harmsworth
Mark Harmsworth
Chief Financial Officer at HCI Group

Yes. The loss ratio on that assumed business, the difference between that and the legacy business, if you will, is indistinguishable, which we didn't we did not assume that at the start. And that's part of what you're seeing.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

Yes. And the fact that it's doing that is attributable to nothing other than technology. So that is why as you start to look at how all this stuff is working, not in theory it'll work someday in the future, It's showing right there in the combined ratio, which effectively, to Karen's point, is dropping by about 10% in the course of the year. All the insurance guys would tell you that if you can improve by two or three points in a year, you should be thrilled, right. We seem to be effortlessly doing it by 10% and the tone is just matter of fact as opposed to doing laps around the boardroom table.

Mark Hughes
Mark Hughes
Analyst at Truist Securities

Does that open up the possibility for additional takeouts if you're doing as well on these and presumably you can kind of mine a little lower strata or higher strata, however you want to look at it for future takeouts. Is that fair?

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

Yes, it does, right. And look, one of the things that we are doing, because we also happen to be in a state where the legislature made the reforms and then has kept a very steady regulatory environment, a stable environment, is that we can step up and offer alternatives to people to go to the private market. And I will tell you, it's an incredible achievement and this is for the whole state of Florida that even after three hurricanes, right, the insurance the private insurance industry stepped up and Citizens actually shrank in the fourth quarter, which is after the hurricanes, right. And there is talk of it and to your question, we're going to shrink Citizens even further, right. That is what a stable healthy market looks like.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

And it only suddenly contracts itself when you compare it to what may be about to happen in California, right. Good regulations matter and when you have them, the private industry usually responds in a very, very positive manner as it has done here.

Mark Hughes
Mark Hughes
Analyst at Truist Securities

If I might slip in one more. Parrish, what do you think about the reinsurance market outlook in the wake of the California wildfires?

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

I'll give you a tongue in cheek answer because we were in Bermuda in mid January. I think everybody wants to worry and discuss about what's going to happen in California. We are the boring insurance guys from Florida, right, where what we said we were going to do, we did, the losses are contained, the numbers we said we would Mark had estimated other numbers that are coming through. So like I said, everybody looked at us. I said, we know exactly how you behave.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

We know exactly what the rates are going to do, everything else. We like you as customers. We have to solve our California problem. I think that sentiment says it all, right? California is now the talking point of the industry.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

We seem to be the boring Florida guys. And I love that by the way, right? First time it's happened in eighteen years and it's always a good thing when it does.

Mark Hughes
Mark Hughes
Analyst at Truist Securities

Thank you very much.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

Thanks. Yes.

Operator

Thank you. We have reached the end of our question and answer session. So I'll now turn the call back over to Mr. Patel for any closing comments.

Paresh Patel
Paresh Patel
Chairman and Chief Executive Officer at HCI Group

Okay. On behalf of our entire management team, I would like to thank our shareholders, employees, agents and most importantly our policyholders for their continued support. We look forward to updating you with our progress in the coming months. Thank you.

Operator

Thank you. Ladies and gentlemen, this does conclude today's conference and you may disconnect your lines at this time. We thank you for your participation.

Executives
    • Karin Coleman
      Karin Coleman
      President of Homeowners Choice Property & Casualty Insurance Company, Inc., COO & Director
    • Mark Harmsworth
      Mark Harmsworth
      Chief Financial Officer
    • Paresh Patel
      Paresh Patel
      Chairman and Chief Executive Officer
Analysts
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Key Takeaways

  • HCI managed over 22,600 claims in 2024—more than half tied to hurricanes Debbie, Helene and Milton—and expects to pay over $500 million while holding Florida rates steady and maintaining ~90% customer retention.
  • The company grew policies in force from 247,000 to 272,000 and in-force premium by 22% to over $1.2 billion, including a 77% success rate converting 68,000 Citizens’ policyholders and launching the new Condo Owners Reciprocal Exchange with $70 million of premium.
  • Despite three hurricanes, full-year pretax income reached $173 million (diluted EPS $8.89), with a non-catastrophe loss ratio under 25%, a normalized combined ratio near 75%, and investment income that has doubled over two years.
  • Balance sheet strength improved as book value rose from $33.36 to $42.10 per share, debt-to-capital fell from 50% to 34%, underwriter surplus grew 50%, and holding company liquidity remained above $200 million.
  • A new structure separates HCI’s top-performing carriers and real estate operations from its tech platform—Exxio Group—which earned $35 million pre-tax in 2024 and is being prepared as a standalone entity to serve other insurers.
AI Generated. May Contain Errors.
Earnings Conference Call
HCI Group Q4 2024
00:00 / 00:00

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