HCI Group Q2 2025 Earnings Call Transcript

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August 7, 2025

Key Takeaways

  • Positive Sentiment: HCI reported $5.18 earnings per share this quarter, improved its net combined ratio to 62%, and grew total shareholders’ equity to $759 million, up 65% year-to-date.
  • Positive Sentiment: The company reduced its debt-to-capital ratio to under 10% by redeeming $172 million of convertible notes, lowering quarterly interest expense to under $1 million and strengthening the balance sheet.
  • Neutral Sentiment: HCI successfully placed its 2025-2026 reinsurance treaty—with full effects expected next quarter—aiming for a normalized net combined ratio of about 70%.
  • Positive Sentiment: Homeowners Choice, TypTap Insurance, and Tairro Reciprocal were approved to depopulate 25,000 policies each from Citizens in October, leveraging HCI’s technology to select high-quality accounts.
  • Neutral Sentiment: Exeo has confidentially filed an S-1 for an initial public offering of its common stock, marking the next step toward spinning off its proprietary insurance technology platform.
AI Generated. May Contain Errors.
Earnings Conference Call
HCI Group Q2 2025
00:00 / 00:00

There are 10 speakers on the call.

Operator

Good afternoon, and welcome to HCI Group's Second Quarter twenty five Earnings Call. My name is Paul, 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 09/06/2025, starting later today. The call is also being broadcast live via webcast and available via webcast replay until 08/08/2026, on the Investor Information section of HCI Group's website at www.hcigroup.com. I would now like to turn the call over to Bill Brumall, VP of Investor Relations.

Operator

Bill, please proceed.

Speaker 1

Thank you, and good afternoon. Welcome to HCI Group's second quarter twenty twenty five earnings call. To access today's webcast, please visit the Investor Information section of our corporate website at www.hcigroup.com. Before we begin, I would like to take the opportunity to remind our listeners that today's presentation and responses 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.

Speaker 1

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 the results of operations. HCI Group disclaims all 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.

Speaker 1

Karen?

Speaker 2

Thank you, Bill, and welcome, everyone. HCI reported another great quarter. Highlights for the second quarter include reported earnings of $5.18 per share, we improved the net combined ratio to 62%, and total shareholders' equity grew to $759,000,000 up 65% year to date. In addition to these financial achievements, we had several other important developments in the quarter. We reduced our debt to cap ratio to less than 10%.

Speaker 2

Homeowners Choice, TypTap Insurance Company, and Tailroad Reciprocal Exchange were each approved for depopulation from Citizens in October. Also, HCI successfully placed its reinsurance program for the twenty twenty five-twenty twenty six treaty year. Our conservative reinsurance strategy ensures we are well protected for the year ahead. The technology developed at Exio continues to play an important role in HCI success and is a real differentiator. For example, it has enabled HCI to identify favorable market shifts early.

Speaker 2

We detected improvements in Florida's underwriting environment ahead of many peers, and we executed on that opportunity. We've been able to scale rapidly without compromising underwriting discipline. HCI has grown in force premium by more than $460,000,000 to approximately $1,200,000,000 since the 2022. The technology has allowed HCI to select and retain the right customers, supporting a retention ratio of about 90%, and our gross loss ratio improved during that time to below 25%. Collectively, Exeo's technology has delivered meaningful value to shareholders as reflected in HCI's strong financial performance in recent quarters.

Speaker 2

Looking ahead, irrespective of market conditions, we're confident that our experienced team, combined with our technology, will continue to help identify and underwrite attractive policies that align with our risk and profitability standards. With this advantage, we believe HCI is well positioned to generate compelling returns on shareholder capital. Now, I'll turn it over to Mark to provide more details on our financial results.

Speaker 3

Thanks, Karen. Pretax income for the quarter was just over $94,000,000 and diluted earnings per share were $5.18 compared to $4.24 in the second quarter last year. Year to date, pretax income is $195,000,000 and diluted earnings per share are 10.57 This significant continuing improvement is driven by higher premiums, a lower loss ratio and lower operating expenses as a percentage of premiums. The gross loss ratio this quarter was 21.3%, up slightly from the first quarter this year, but more than six points lower than the second quarter last year, reflecting the continuing decline in claims frequency. We also continue to generate significant operational leverage as evidenced by the lower operating expenses as a percentage of revenue.

Speaker 3

When combined with lower loss ratios, the result is a combined ratio, which was just under 62% for the second quarter. As we announced back in June, we completed our reinsurance program for the year. Because of the effective date of the new program is June 1, part of the impact shows up in the second quarter, but the full impact will be reflected in the third quarter. At that time, premium ceded to reinsurance will be $106,000,000 per quarter, just slightly higher than they were in the first and second quarters. Once the full effect of the new program is reflected, we expect the net combined ratio to be about 70%.

Speaker 3

Now let's look at the balance sheet, which continues to strengthen. In June, we redeemed the remaining balance of our 4.75% convertible notes, fully settling the $172,000,000 obligation. As Karen mentioned, this brings the debt to cap ratio well under 10% and interest expense going forward will now be a little less than $1,000,000 per quarter which is less than a third of what it had been. Due in part to this redemption but also because of continued profitability, shareholder equity has grown by more than $300,000,000 so far this year and is now well over three quarters of a billion dollars. Book value per share has grown by more than $16 so far this year to $58.55 at the June.

Speaker 3

In terms of holding company liquidity, it's just over $250,000,000 at the end of the second quarter and there is now very little debt at the holding company level. To summarize, this was another fantastic quarter for the company. The company is growing, but even more importantly, all of our financial metrics continue to improve. The loss ratio continues to come down, the combined ratio continues to come down and the balance sheet continues to get stronger. And with that, I'll hand it over to our President of Exeo, Kevin Mitchell to give us an update on Exeo.

Speaker 4

Thanks Mark. We remain excited about our momentum at Exeo. As we have mentioned on our prior earnings call, we are moving forward with our plans to have Exeo be a separate publicly traded entity. After careful consideration of all of our options, we believe the best path is to pursue an initial public offering of Exeo shares. Earlier this week, Exeo confidentially submitted a draft registration statement on Form S-one with the U.

Speaker 4

S. Securities and Exchange Commission relating to a proposed initial public offering of Exeo's common stock. As a result, our CFO, Suela Bolcu, and I won't be making statements on Exeo's results in the near term. Additionally, with the suggestion of counsel, we are advised to provide the following disclosure. The size and price range of the proposed offering by Exeo have not yet been determined.

Speaker 4

The initial public offering is expected to take place after the completion of the SEC review process subject to market and other conditions. There is no assurance that the initial public offering will be completed. We note that this announcement regarding Axio is being made under SEC Rule 135 and does not constitute an offer to sell or the solicitation of an offer to buy securities. Furthermore, it does not constitute an offer solicitation or sale in any jurisdiction in which such offer solicitation or sale would be unlawful prior to registration or qualification under the securities laws of that jurisdiction. Now, I want to turn the

Speaker 5

call over to Parish. Thank you, Kevin. As Karen and Mark highlighted in their comments, HCI reported another quarter of strong financial results. Kevin's exciting comments on Exeo reminded me of a time eighteen years ago. Last week marked the seventeenth anniversary of HCI's IPO.

Speaker 5

The company has come a long way since going public in 02/2008, in the middle of a great financial crisis. But over the past eighteen years, our management team has always been guided by a central principle, building long term shareholder value. And along the way, there's always been ups and downs, but what matters most is what you achieve, not where you begin. As an example, eighteen years ago, you wouldn't have predicted that we would grow earnings 25 times, or increase the share price by 20 times, and increase the shareholders' equity over 30 times. I note that because our management team has a proven track record of delivering short strong long term returns for our shareholders, and we are all very committed to building on that success.

Speaker 5

Please join us as we embark on the next leg of our journey. Our best days are in front of us. And with that, I will turn it over for questions.

Operator

Thank you, sir. At this time, we'll be conducting a question and answer session. If you have any questions or comments, please press star one on your phone at this time. The first question today is coming from Matt Carletti from Citizens Capital Markets. Matt, your line is live.

Speaker 6

Hey, thanks. Good afternoon.

Speaker 5

Hey, Matt.

Speaker 7

Parrish, maybe I'll start.

Speaker 6

I was hoping that you might be able to kind of update us on what you're seeing market condition wise in Florida, competitive landscape and so forth.

Speaker 5

I want to give that question to Karen.

Speaker 2

Sure. Thanks, Harish. The environment in Florida now is a healthy one as you can see from financial results. It's natural that it will attract capital and competition, but that's not new to us. We've been around for a long time and have succeeded in all kinds of markets.

Speaker 2

The more competitive market is already here. Look at the 2023 takeout process. That was somewhat competitive, and 2024 even more so. But even with that, we got more policies than we thought we would get. The attrition on those policies has been less than what we thought, and the loss ratio has been lower than we thought.

Speaker 2

So we believe we're well positioned in a competitive market. We have multiple underwriters that can pursue different strategies. We have a strong capital position. And as I mentioned earlier, we have the people and the technology to make the right decisions.

Speaker 6

Karen, sticking with that, you mentioned in your prepared remarks about HCI and TARO being approved for an October Depop.

Speaker 5

Can you just give us kind

Speaker 6

of your outlook for maybe what we should expect as we progress through kind of the balance of the year in terms of any of the HCI entities, what appetite for Depop might be or prospects for it?

Speaker 2

Sure. The three carriers I mentioned earlier, Homer's Choice, TypTap and TailRow, each have been approved for 25,000 policies in October. And we'll leverage our technology as we've done in the past to identify those greenhouses that you know that we focus on. So there'll be some that we want and we'll be able to select those given our underwriting criteria.

Speaker 6

Great. And then one last one, if I could, I appreciate based on kind of Kevin's remarks that you may not be able to answer this, and that's fine. But I was just curious, obviously, a focus has been getting Exeo out on its own standalone so it can really thrive. Just the decision for IPO versus spin, if there's anything you can comment on and again if you can't totally understand.

Speaker 3

Hey Matt, it's Mark. Can't sort of in line Kevin's comment. We can't really get too far into that. Mean obviously, Exeo is a great company. It's done great work for us.

Speaker 3

Karen talked about the effect on our operations. It's a tremendous asset for us. The way it's structured right now sort of being tucked under HCI. It's not ideal for either evaluation purposes or competitive reasons but you know, we're very focused on that. We're really excited about it.

Speaker 3

We're excited about the future but you know unfortunately we just can't you know get into the details and pros and cons one strategy over the other at this at this point

Speaker 6

completely understand and appreciate all the answers thank you

Operator

Thank you. The next question will be from Michael Phillips from Oppenheimer. Michael, your line is live.

Speaker 8

Yeah. Hey. Thanks. Good afternoon. On the extra thing, this isn't really related to the IPO process, but just a random question.

Speaker 8

You've talked in the past couple of quarters since you've started talking about this, of the benefits to Accio for being independent from Homeowners Choice. I guess I wanted to ask on the flip side of that, what do you think are the benefits to Homeowners Choice from being independent from Accio?

Speaker 5

Great question. I would simply tell you that what we now have is people can focus on what they do. So HCI group ex Exio has some interesting opportunities in front of them, and we are not quite ready to talk about them on an open mic, but I think people are looking forward to what a pure insurance play might do in the coming years, given the volatility in the property and casualty market on a national basis. Yeah? So we have some great opportunities there as well.

Speaker 8

Okay. Thanks. Could you maybe just on the environment, could you comment on what you're seeing in your condo business for the pricing environment?

Speaker 5

I think we would confirm the same item that lots of other people would. I think you're talking about commercial residential. Yes, agree. That market is very soft, continues to be soft. But it is that it, you know, as Karen mentioned, this is nothing new I'm telling you, it's been this way for months.

Speaker 5

But we're fine with it and we anticipate it and it's a very small part of our business and is not, you know, a significant issue to us. But I think it is the whole market is soft. That's old news at this point.

Speaker 8

Yep. Okay. And then just lastly, quick numbers just to confirm. Since 4Q is pretty sizable, favorable reserve adjustment, you haven't done anything since then, just confirming that?

Speaker 3

No. Mean, no changes.

Speaker 8

Okay. Great. Thanks, guys. Congrats.

Operator

Thank you. The next question will be from Mark Hughes from Truist. Mark, your line is live.

Speaker 9

Yeah. Thank you. Good afternoon. Mark, you commented in the past on weather being an influencer on the loss ratio. Was this an unusual quarter from a weather standpoint or was this more normal?

Speaker 3

No. Actually, I should just give you a little bit more color Mark. If you go back to the second quarter of last year, compare that to the second quarter of this year, we have about 12.5% more policies now and we actually had I think 40 or 50 fewer claims. But that's despite the fact that we actually had a little bit more weather in the second quarter of this year versus the second quarter last year. We had to think about a 100 more weather claims this quarter but a 150 fewer non weather claims.

Speaker 3

So, frequency is down significant. I don't think it's an aberration. We had more weather in Q2 than we had in Q1. We had more weather in Q2 than we had in last second quarter, but the loss ratio just continues to come down because the frequency is coming down.

Speaker 9

Very good. I think in the last call and in the Q, you gave some summary, Exeo Financial's revenue and pretax income. Is that going be in the Q this time around? Are you able to share that on the call?

Speaker 3

Yeah, so we won't go through it on the call, but it'll be the same as it always is in the queue, Mark. It's disclosed in the segmented information and it's been there for quite a while. It'll be there. You'll see it tomorrow.

Speaker 9

Okay. And then investment income was little bit higher sequentially. Was there anything unusual there or is that a good number on a go forward?

Speaker 3

That is, I think a good number going forward. There's nothing unusual there. It just, I mean, it reflects if you look cash and invested balances at the end of Q2 compared to the start of the year is like 300,000,000 higher because we generated $300,000,000 of positive cash flow so far this year. So, cash is I think $950,000,000 or something like that at the end of Q2. So, it's really just that.

Speaker 3

To this point, rates have been fairly flat, but just the invested balances are up significantly. Yeah, I think that's a pretty good number to project forward.

Speaker 9

Yeah. And then what was your comment on interest expense post these developments?

Speaker 3

Oh, just so we had a quarterly interest expense of on the convertible notes which was significant and going forward that's gone. So, the only interest expense will have going forward is on the credit line and on real estate loans. And I think our projection there is about $950,000 per order which is about a third of what it's been in the past.

Speaker 9

Yeah. How is the kind of the remaining policies that are available for takeout? How would you characterize the opportunity now versus a year, two years ago, the 25,000 I think is lower number and maybe that reflects that, but you've got across all three subsidiaries, you're doing 25,000. So I'm just curious how you'd characterize the potential this time around.

Speaker 5

Yeah, Mark, so about the 25,000 PICCs per tariff, it just seems, they're all financially healthy enough that they can aspire to those numbers, right? What they will do in practice is what Karen said, is how many greenhouses can they find that makes sense for us to take, right? To your bigger question, the ratio of red houses to greenhouses has obviously dramatically shifted. Right? Because if you recall things from the past, we had said there's about 500,000 policies that should remain in citizens.

Speaker 5

So you as you approach that number, the book gets a lot more redder than green, if you like. Yeah. And that's occurring, but that's okay. We know what we're doing. And that's what Karen was alluding to as to how the software runs.

Speaker 9

Understood. On the gross premiums written, the tip tap was a nice jump this quarter, 40%, homeowner's choice at 18%. Was there any could you characterize how much of that was kind of continuing takeout or renewal on takeout revenue? Is that just kind of a timing issue? Was there much or any voluntary in that those numbers?

Speaker 3

Not a lot of voluntary in there. It's largely the renewal of the existing book renewal of the takeouts that we did obviously. And the only thing you have to just be a little bit careful of when you're comparing quarter over quarter is in the second quarter of last year we had we did the take that the core take out so gross written premiums a bit higher in Q2 last year but other than that it's pretty you know it's pretty comparative It's up 18% quarter over quarter, something like that.

Speaker 9

And just one more, Mark, you had used kind of a 70% net combined ratio. Is that normalized for the expense savings associated with the takeouts? Is that giving kind of a full load at this point?

Speaker 3

Yes. So, would And that's the reason that it 62% this quarter. The reason we're saying 70% is that that's normalizing for three things. It's got the full reinsurance load in it. It also has full policy acquisition expenses because remember you've got a period of time where you're amortizing in premium that doesn't have any commissions on it.

Speaker 3

And then, you know, we've also allowed, you know, a little bit of wiggle room on the loss ratio if it drips up, you know, a couple of points. But, that's all meant, that's all captured in that 70% combined ratio which should be normalized, fully loaded, you know, to non cap number obviously, but that's once everything sort of normalizes out.

Speaker 9

Very good. Thank you.

Operator

Thank you. The next question is coming from Casey Alexander from Compass Point. Casey, your line is live.

Speaker 7

Yeah, good afternoon. Paris, it's funny when you were making your comments about eighteen years ago, before the call started, was looking at the six month diluted earnings per share of $10.57 and thinking to myself, jeez, that's more than what the price of the stock was when we first met eighteen years ago. So it is actually quite an achievement. I just want to clarify on the Depop. That is 25,000 policies each for each of the three entities or 25,000 spread across the three entities?

Speaker 3

25,000 for each underwriter.

Speaker 7

So a total of 75?

Speaker 3

Yes.

Speaker 7

Okay. Great. And I'm curious about your comments. You know, where do you see

Speaker 5

some

Speaker 7

opportunities emerging outside of the state of Florida? And to a specific fit, how helpful will Egzio be to HCI TypTap at all in identifying those opportunities?

Speaker 5

So this is what gets us very excited. And I'm speaking as HCI ex Axio. Right? Because of the because of this technology and everything else, we are starting to see shoots of opportunity in, certain states. And we also see potential opportunities in some other really big states.

Speaker 5

But we are, you know, being very careful as to how we go at this thing, because to be blunt, we have a very good thing going as HCI ex exio. So you wanna make sure you take your next steps carefully, but you wanna again, we when we do them, we are trying to do this with a multiyear horizon, multiyear time frame in mind. So that's why we're we're trying to be level in our tone, but we are excited that just look at the numbers. This egg geo technology just keeps making us better and better. Right?

Speaker 5

And you can no longer attribute it to what was it was being attributed to a couple of years ago because of the legislative reforms. Right? That was three years ago now. And these numbers just keep improving. Right?

Speaker 5

You know, back to your opening comments also, eighteen years ago, you're right. Right? You wouldn't have said EPS for two quarters would exceed the share price that we were talking about back then. Yeah? That's for sure.

Speaker 8

Mhmm.

Speaker 7

Alright. Thanks for taking my questions, and and congrats on a good quarter. Thanks.

Operator

Thank you. At this time, this does conclude our question and answer session. I would now like to turn the call back over to Parish Patel, who has a few closing remarks.

Speaker 5

Thank you. On behalf of the entire management team, I would like to thank our shareholders, employees, agents, and most importantly, our policyholders for their continued support as we embark on the next phase of our growth. Stay tuned. Thank you.

Operator

Thank you. At this time, this concludes our question and answer session. And this concludes today's call. You may now disconnect.

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