NYSE:HCI HCI Group Q2 2023 Earnings Report $145.35 -0.51 (-0.35%) Closing price 04/17/2025 03:59 PM EasternExtended Trading$146.08 +0.73 (+0.50%) As of 04/17/2025 04:07 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast HCI Group EPS ResultsActual EPS$1.22Consensus EPS $0.60Beat/MissBeat by +$0.62One Year Ago EPSN/AHCI Group Revenue ResultsActual Revenue$127.33 millionExpected Revenue$122.85 millionBeat/MissBeat by +$4.48 millionYoY Revenue GrowthN/AHCI Group Announcement DetailsQuarterQ2 2023Date8/8/2023TimeN/AConference Call DateTuesday, August 8, 2023Conference Call Time4:45PM ETUpcoming EarningsHCI Group's Q1 2025 earnings is scheduled for Tuesday, May 6, 2025, with a conference call scheduled on Wednesday, May 7, 2025 at 4:45 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by HCI Group Q2 2023 Earnings Call TranscriptProvided by QuartrAugust 8, 2023 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Afternoon, and welcome to HCI Group's 2nd Quarter 2023 Earnings Call. My name is John, 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 June 8, 2023, starting later today. The call is also being broadcast live via webcast and available via webcast replay until May 9, 2024, on the Investor Information section of CI Group's website at Speaker 100:00:36www.hcigroup.com. Operator00:00:39I would now like to turn the call over to Matt Glover, Gateway Investor Relations. Matt, please proceed. Speaker 200:00:45Thank you, John, and good afternoon, everyone. Welcome to HCI Group's 2nd quarter 2023 earnings On today's call is Karen Coleman, HCI's Chief Operating Officer Mark Harmsworth, 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 Q2 of 2023, And then Paresh will provide a strategic update. To access today's webcast, please visit the Investor Information section of our corporate website at Speaker 300:01:19Before we begin, I would Speaker 200:01:20like 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. 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 The Securities and Exchange Commission. Should any risks or uncertainties develop into actual results, these developments could have material adverse effects on the company's business, Financial conditions and results of operations. Speaker 200:02:01HCI 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. Karen? Speaker 400:02:10Thank you, Matt, and welcome, everyone. HCI Group reported another strong quarter with pretax income of $20,300,000 and diluted earnings per share of $1.28 Operating earnings improved over last quarter, again reflecting positive contributions from each of our business segments. In insurance, gross premiums earned were stable, while losses and expenses declined, driving increased profitability in the quarter. Our consolidated loss ratio was approximately 34%, down from 47.9% last year and consistent with our expectations. Homeowners Choice continued to generate healthy earnings while TypTap Insurance Group reported its 2nd straight quarter of GAAP profitability. Speaker 400:02:56In May, we finalized our reinsurance program for the coming year with rates and terms that were consistent with our expectations. We filed an 8 ks detailing this program with the SEC on May 31. In investments, Net investment income totaled $8,800,000 almost entirely derived from interest on our cash and fixed income holdings. Our portfolios continue to generate steady streams of income, benefiting from higher interest rates, short duration And reinvestment yields above 5%. Finally, HCI Group continued to deliver on its commitment to shareholders, Paying a dividend of $0.40 per share, our 51st consecutive quarterly dividend. Speaker 400:03:41To summarize, This quarter highlighted the underlying strength of our diversified businesses and the true earnings power of HCI Group. And now I'll turn it over to Mark to provide more details on our financial results. Speaker 500:03:54Thanks, Karen. So as Karen mentioned, pretax income for the 2nd quarter Was $20,300,000 and diluted earnings per share were $1.28 The pre tax income was similar to that of the Q1 this year with one significant difference. In the Q1, we had a gain of almost $9,000,000 from the sale of real estate and this quarter's profit was driven simply from the regular ongoing operations of our insurance businesses In what we see as a strong repeatable operating quarter. In the past few quarters, we've highlighted several positive trends And as you can see from the results, these trends continue to support sustained profitability. The trends we've discussed Our higher average premium per policy, increasing investment income, lower policy acquisition costs And most important, a lower gross loss ratio. Speaker 500:04:53Let's take a look at each of these. First, as was the case in the Q1, Gross premiums earned are up despite policies in force being down driven by rate adjustments made over the past few quarters Combined with the natural attrition of the book. Our consolidated average premium per policy is about 25% higher than it was a year ago, which helps reduce the loss ratio and improve earnings. The second positive trend is that investment income is up. Investment income of $8,800,000 is more than double what it was in the same quarter last year, driven by increasing interest income On fixed term investments and on cash, our investment strategy is working and while our yield is up considerably, we still have a short Term to maturity, which gives us the opportunity to further increase investment income in the coming quarters. Speaker 500:05:47The 3rd positive trend is that policy acquisition expenses are declining as a percentage of gross premiums earned. In Q2, policy acquisition expenses We're 12.4 percent of gross premiums earned, down from 14.8% in the same quarter last year because of lower commissions And the transition of the UPC book. The last and most important trend is a decline in the consolidated loss ratio, Which is following the glide path we've been discussing over the past few quarters. On previous earnings calls, We said we expected a material beneficial impact from the new legislation in Florida and that impact is starting to show up in our results. The consolidated gross loss ratio was 34% this quarter, down considerably from 47.9% in the same quarter last year, Driven by lower claim frequency, flattening claim severity, lower litigation frequency and higher average premium per policy. Speaker 500:06:49I wanted to mention TypTap just for a minute. You may recall that TypTap Insurance Group was profitable in the Q1 and it was a gain in the second, Reflecting the same trends discussed on a consolidated basis, higher average premium per policy, higher investment income And a lower loss ratio. Just a few other quick things. Book value per share increased Significantly from $18.91 at the start of the year to $21.92 at the end of the second quarter. Cash and financial investments at the holding company level were $164,000,000 at the end of the quarter, Up from $140,000,000 at the start of the quarter. Speaker 500:07:33Before turning it over to Paresh, I wanted to step back from the numbers to just add one thing. What I hope comes through in my comments here is that the trends that have led to these results Are the same continuing trends we've been discussing for some time now and we think that they are sustainable. We've managed the business carefully to get to this point And while we can never predict the future, this quarter reflects what we expect to see going forward. And with that, I'll hand it over to Paresh. Speaker 100:08:04Thanks, Mark. Karen talked about our positive Q2 results, and Mark laid out why the results this quarter are sustainable. There are several items that we've talked about on previous calls that I think are worth reviewing. First, we've positioned our investment portfolio to provide investment income in a meaningful and sustainable fashion. By staying on the short end of the curve, We maintain maximum flexibility and we are making a healthy income from that side of the business. Speaker 100:08:372nd, Following legislative reform that was passed last year in Florida, we anticipated that the loss ratio would come down and it has. 3rd, the uncertainty around the availability and affordability of reinsurance is now behind us with the placement of our 2023 reinsurance program. And lastly, a year ago, we took decisive rate action To combat economic inflation and those rate actions continue to work through our book of business. So overall, while earned premium has been roughly level year over year, the profitability of the business has improved considerably. And all of this is important as a backdrop because we now have a healthy stable business. Speaker 100:09:28We can now look to the future and the obvious thing to do is to expand and grow the business, especially in Florida. And that is exactly what we plan to do. We've applied with the Florida OIR for our citizen of the population in the Q4 of this year. We are starting from a baseline of approximately 200,000 policies and $740,000,000 of in force premium throughout the U. S. Speaker 100:09:54At the end of Q2, we will now resume growth to a higher number in the future. In summary, going forward, we are looking to grow our policy count, grow our in force premium And grow our profitability. With that, I will turn over for questions. Operator, please give instructions. Operator00:10:20Absolutely. Thank you. At this time, we will be conducting a question and answer session. One moment please while we poll for questions. The first question comes from Matt Carletti with JMP. Operator00:10:52Please proceed, Matt. Speaker 300:10:56Thanks. Good afternoon. Speaker 600:10:59Hi, Matt. Speaker 100:11:01Hey, good afternoon. I guess first I'll pick up right Speaker 300:11:04where you left off with the news of applying for Citizens Depop. Is there any color you can give us on it sounds like Q4, but in terms of potential kind of The number of policies, the amount of premium that ideally you'd like to execute on? Or is that stay tuned yet to come? Speaker 100:11:25It's a big share of both, but Matt, just so far, the events let everybody know because they'll all be news in 30 days or so anyway. As you know, we've done this many years and there's a process by which we go through. So what we've applied for is 75,000 policies in the month of November, November 21 to be precise. But as you Should also know that is a maximum number the actual number of policies we will get will be some number that is Less than that, it's just the way the process works as you go through the various hoops. And the actual number of policies and premium we will get We'll actually be best known on November 21, the date of the assumption. Speaker 100:12:12It's just we're on that road between now and then. Speaker 300:12:16Yes. Is there anything that can maybe you could offer some guidance there? I mean, we could look to past takeouts you've done. I mean, you've done a lot of them over the Of course, the company, obviously not in recent history, but the market was right for them. But I know there's been some Your legislative changes and rule changes around citizens in terms of people having to go or not go, Any color you can provide there in terms of how that might change the potential conversion rate? Speaker 300:12:45Or if it's just too early to Speaker 200:12:47know, you won't know until you go through Speaker 100:12:51Matt, historically, the numbers have been as high as 65%. The numbers have been as low as 20% and some of that range and that's quite a wide range in between 20% 65%, but that range Is going to is also being affected by new citizens takeout rules that have now come into place And how the method works and everything else and the new regulations where people are more strongly encouraged to leave So given all of those things and we also don't know how many other people are applying for takeouts in November, But there is 1,300,000 policies in Citizens, right? So this is a small drop in the Citizens universe, shall we say. So given all of those things, there is some variability to that number, but you can imagine to a carrier that has 200,000 policies, and 130,000 of which are in Florida, any number is going to be rather significant, yes? Speaker 300:13:56Yes, For sure. That's very helpful. Maybe looking at a bigger picture, I know the focus is Florida and you have a huge opportunity there. But TypTap has expanded outside of Florida and we are seeing a lot of household names kind of recalibrate their appetite Nationally, while this seems climate change related, what I think of HCI as having a lot of experience in a state that Kind of has gone through that over the past 20, 30 years. Is there a longer term opportunity there for HCI or what lessons kind of have you guys learned By operating in the environment that is Florida that maybe you can take elsewhere when the time is right. Speaker 100:14:42Yes. Matt, I think, obviously, reading the headlines in the press releases and the Statements in earnings call from a number of other carriers, etcetera, especially outside Florida, you sort of get the level of angst that is going on. I think if I was to predict what's going to occur, judging by what happened in Florida probably like 15, 20 years The supply and number of people willing to offer policies is going to shrink. Demand isn't going away because every household still needs policies. So supply is going to shrink, demand is going to stay the same or grow. Speaker 100:15:24It will take a while for Premiums to adjust is the new reality that I think everybody is facing using climate changes as an example that you used. But eventually all that will stabilize out and there will be somebody, let's just say by 2,030, We will be providing insurance, and we'll be doing it in a profitable manner, right? It's just between now and then, there will be a lot of Sure. In terms of both who the carrier is and who and what the rates are, that is what I think is starting to Unfold throughout the country. We've seen this movie before because that's exactly what happened in Florida After the 2004, 2005 storms, yes? Speaker 300:16:12Yes. That makes perfect sense. And there's a couple of quick numbers questions if I could probably for Mark. On the policy acquisition costs, you highlighted kind of coming down to around about 12.5% from a couple of points higher a year ago. Are we can we kind of work through the adjustments there in terms of lower commissions in some of the forces or kind of where do you think that could go going forward? Speaker 500:16:36Yes. I think that's about where it's going to be for the foreseeable future unless there's any other changes. It might Drift down a little bit, Matt, but I think the bulk of that improvement that you've seen there is reflected in where we're is in the numbers now. Great. Speaker 300:16:53And then just a quick numbers one. Do you have net written premiums handy? Speaker 500:16:58Yes. So it's 113,600,000 Speaker 300:17:03Great. Thank you very much for all the color and congrats on a nice quarter. Thank Operator00:17:17The next question comes from Mark Hughes with Truist. Mark, please proceed. Speaker 600:17:23Yes, thanks. Good afternoon. Speaker 100:17:26Good afternoon, Mark. Speaker 600:17:28You have come a long way in a short period of time on loss costs. I wonder if you could maybe break out how much might have been more favorable weather in the quarter? How much is Your own pricing initiatives and how much progress is actually tangible progress from the regulatory For, Paresh, I think you said you think losses will get down to the 30% level. Is that Still a good number? Could it go lower based on what we see here? Speaker 500:18:05Hey, Mark. It's Mark. So To the first part of your question about the weather, so there really was not a discernible difference in the weather between Q2 last year and Q2 this year. So the decline in the loss ratio from Q2 last year to the Q2 of this year really didn't have anything to do with weather, right? There's always weather in Q2. Speaker 500:18:32We had a significant amount of weather in Q2 last year. We had a significant amount of weather in the Q2 this year. So that's not the reason that the loss ratio is down. So the loss ratio is down for the 3 or 4 things that I mentioned earlier. And average premium is up, obviously that's going to help. Speaker 500:18:50Frequency is down, which helps. And, the average ultimate cost of a claim is down Because litigation is down. So, those three things work their way through the loss ratio at a different pace. You see the impact of the average premium per policy going up. You see that first. Speaker 500:19:14So that's probably maybe 60%, 65% of the reason For the drop this quarter, the balance being some of the legislative changes. But I think the most important thing to say, and I think I said it in my Comments is we developed an expectation of what we thought would happen to the loss ratio When we when the legislation came out, and that is still our expectation, what we've seen in the first half of the year is Consistent with what we saw, frequency is coming down, litigation is coming down. And to your point about the 30%, I think Paresh and I have both mentioned We think the consolidated loss ratio will come down from about 40% to about 30% And yes, it would take some time to get there, but we still feel that that's where we're headed. So the trends are moving in the right direction And we're really encouraged by the progress. Speaker 600:20:16How much and thanks for that detail. How much are you going to pursue voluntary business as the year progresses? Are you going to Be more dependent or look to drive growth on the takeout, the acquisition cost is certainly Pretty attractive. Is that going to be the focus? Speaker 100:20:41Mark, it's Parrish. Regarding that, I think we are doing voluntary business anyway. It's just how it runs through the book is where the numbers become different. The takeout is A opportunity that we've anticipated for a while and we've actually communicated on previous calls and is now here and we are taking advantage of it. It's almost like in addition to the other things we've been doing. Speaker 100:21:09So we are I guess the overall theme that we're trying to communicate is 2 quarters of the rationalization got passed. We people were asking, hey, what will this mean? How much impact will you see? People were trying to get it quantified. And we made We modeled things and we've tried to do forecast where things were going to be and how things will evolve. Speaker 100:21:36And I think what we're telling you halfway through the year Things are working out fairly much like we had said, and now it's actually showing up in the numbers the way we had said it. And then the follow-up actions we had Said we would take when that was achieved is what we're laying out for the back half of the year, yes? Speaker 600:21:58Yes, understood. The premiums ceded, what can say a good run rate with the new reinsurance In place in terms of the dollars here. Speaker 500:22:11Yes. It's Mark. Pretty similar to what it is in Q2. We issued an 8 ks, I think it's $67,000,000 in change, very close to what it was in yes, actually just about $67,000,000 So very similar to what it was in Q2. Speaker 600:22:32Okay. Any change in the I think last quarter you talked about your Prior pattern of kind of boosting up reserves a little bit on a quarterly basis, and I think you shifted away from that. Is that Was there any impact from that when we think about the loss ratio? Speaker 500:22:51Not really. I mean, we had net reserves Are pretty flat, so far this year. We didn't really have much adverse development In the Q1, we booked a little bit less than $1,000,000 There's really there's not much going on there. I Reserves for the most incurred for the most part are coming in where we expected them to. And so we're not having to really make any adjustments for prior periods. Speaker 500:23:21And we're keeping net reserves pretty flat for now. There's some indications that they could be starting to come down, but so far we're keeping them flat. Speaker 600:23:31Yes. The TypTap written in the quarter was down year over year. Is that nonrenewable of flood business? What was driving that? Speaker 500:23:40Yes, there's a little bit of noise in there, Mark. It's part of it is flood, About $8,000,000 of it was slug because we had about $4,000,000 of written premium in Q2 last year and we had negative written premium this year Just because there was a return of some of the unearned premium, so that's part of it. And the other is UPC Southeast, so the written premium was down in the second quarter for that and that was just kind of a timing thing you may remember With the UPC changes at UPC, We renewed a lot of the policies that would normally have renewed in Q2 were renewed in Q1. And so we had Higher earned higher sorry, written premium in Q1 and then less in Q2. And Q2 for UPC Southeast was actually a little bit negative. Speaker 500:24:40So there's a lot of noise in the Q2 written numbers that make it a little bit hard to follow. But in Q3, we'll be back to sort of the normal pattern of written premium. Speaker 100:24:53How much cash at the HoldCo? Speaker 500:24:57So as I mentioned, cash and financial investments at the holding company level is about 164,000,000 I think the cash component of that is about $135,000,000 something like that. Speaker 600:25:13Okay. Great. Thank you very much. Speaker 500:25:17Thanks, Mark. Operator00:25:39Okay. We have a couple of questions in queue. The first coming from Lee Currie with Currie Partners. Please proceed. Speaker 700:25:46Good afternoon, Paresh and all your group. What an outstanding quarter, very pleasant. I want to get an idea from you on how the whole Reinsurance environment is shaking out. I know there's been a lot of changes in different directions. Now that you've completed it and seen how it Had ended up last month, what's the outlook going forward from that? Speaker 100:26:11Lee, So a simple answer about the reinsurance outlook, and I didn't make it in my prepared remarks was that Beginning of the year, there was some uncertainty about the availability and affordability of reinsurance, right? Right. And all of that speculation goes on. And I think From what Mark has said and Karen has said and what was released in the 8 ks, we placed our reinsurance program because we had anticipated these changes, etcetera. The numbers are there. Speaker 100:26:40It's now on the 8 ks. So at least for us, we don't have a reinsurance variability anxiety For until next June at the earliest, yes. The other thing on a general reinsurance industry thing, I think, which is the nature of your question, I think the anxiety level amongst reinsurers, at least in terms of Florida, Seems to have abated, especially in by what happened in May. I think there are lots of Reinsurance availability is now starting to normalize. Affordability is a different price, but that's just what that is, yes? Speaker 700:27:26Thank you, Paresh. Well done. Speaker 100:27:28Thank you. Good hearing your voice again, Lee. Operator00:27:34Okay. We have a follow-up coming from Mark with Truist. Mark, please proceed. Speaker 600:27:41Yes, thank you. Just wanted to make sure I was clear on the depots. It's been a while. You Take the premium, whatever you end up being successful on. And then the really no reinsurance associated reinsurance costs or acquisition costs until those Policies, well, until you get to the next storm season or when the policies renew, Is that the right way to think about the financial impact? Speaker 100:28:16Yes. And Mark, I'll split hairs with you. So when you do an assumption, you will book GWP on the assumption date of whatever earn on premium there was. The acquisition cost will be 0 until those policies expire and renew onto our paper, At which point it will go back to normal. And the reinsurance cost on those policies with occasional with very few exceptions Will be 0 till June 1 next year. Speaker 100:28:50Yes? Speaker 600:28:50Yes. Speaker 100:28:51So 3 components move in slightly different ways, but just so you know, yes? Speaker 600:28:56Yes. Any kind of subjective commentary about the quality of the policies In Citizens Now, with the increase, how do you How fertile is the takeout opportunity? Speaker 100:29:17I think the way I would characterize it is Citizens has 1,300,000 policies, if I remember correctly, at the end June, right. That's a lot of policies. We are talking about trying to pick At most, 75,000 policies or if you had said 65,000 policy, it would be 5% of the book, right? Can we find Yes, 5% that we like out of that big of a pool. We like our chances, yes? Speaker 100:29:50But that is I'm not commenting on the entire poll. My sole mission is can I find 75,000 policyholders that we might want as HCI customers and the answer would be yes? Speaker 600:30:09Understood. Thank you. Operator00:30:27We have no further questions in queue. At 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 100:30:39Yes. On behalf of the entire management team, I would like to thank our shareholders, employees, Agents and most importantly, our current policyholders as well as our anticipated future policyholders for their continued support. We look forward to updating you on our progress in the coming quarters. Thank you, everyone. Operator00:31:05At this time, this concludes our question and answer session. This concludes today's call. You may now disconnectRead morePowered by Conference Call Audio Live Call not available Earnings Conference CallHCI Group Q2 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) HCI Group Earnings HeadlinesThe Goldman Sachs Group Cuts Amarin (NASDAQ:AMRN) Price Target to $7.00April 20 at 1:33 AM | americanbankingnews.comHead to Head Review: Kronos Bio (NASDAQ:KRON) and Amarin (NASDAQ:AMRN)April 19 at 3:04 AM | americanbankingnews.comNew “Trump” currency proposed in DCAccording to one of the most connected men in Washington… A surprising new bill was just introduced in Washington. Its purpose: to put Donald Trump’s face on the $100 note. All to celebrate a new “golden age” for America. 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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 Archer Aviation Unveils NYC Network Ahead of Key Earnings Report3 Reasons to Like the Look of Amazon Ahead of EarningsTesla Stock Eyes Breakout With Earnings on DeckJohnson & Johnson Earnings Were More Good Than Bad—Time to Buy? 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There are 8 speakers on the call. Operator00:00:00Afternoon, and welcome to HCI Group's 2nd Quarter 2023 Earnings Call. My name is John, 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 June 8, 2023, starting later today. The call is also being broadcast live via webcast and available via webcast replay until May 9, 2024, on the Investor Information section of CI Group's website at Speaker 100:00:36www.hcigroup.com. Operator00:00:39I would now like to turn the call over to Matt Glover, Gateway Investor Relations. Matt, please proceed. Speaker 200:00:45Thank you, John, and good afternoon, everyone. Welcome to HCI Group's 2nd quarter 2023 earnings On today's call is Karen Coleman, HCI's Chief Operating Officer Mark Harmsworth, 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 Q2 of 2023, And then Paresh will provide a strategic update. To access today's webcast, please visit the Investor Information section of our corporate website at Speaker 300:01:19Before we begin, I would Speaker 200:01:20like 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. 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 The Securities and Exchange Commission. Should any risks or uncertainties develop into actual results, these developments could have material adverse effects on the company's business, Financial conditions and results of operations. Speaker 200:02:01HCI 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. Karen? Speaker 400:02:10Thank you, Matt, and welcome, everyone. HCI Group reported another strong quarter with pretax income of $20,300,000 and diluted earnings per share of $1.28 Operating earnings improved over last quarter, again reflecting positive contributions from each of our business segments. In insurance, gross premiums earned were stable, while losses and expenses declined, driving increased profitability in the quarter. Our consolidated loss ratio was approximately 34%, down from 47.9% last year and consistent with our expectations. Homeowners Choice continued to generate healthy earnings while TypTap Insurance Group reported its 2nd straight quarter of GAAP profitability. Speaker 400:02:56In May, we finalized our reinsurance program for the coming year with rates and terms that were consistent with our expectations. We filed an 8 ks detailing this program with the SEC on May 31. In investments, Net investment income totaled $8,800,000 almost entirely derived from interest on our cash and fixed income holdings. Our portfolios continue to generate steady streams of income, benefiting from higher interest rates, short duration And reinvestment yields above 5%. Finally, HCI Group continued to deliver on its commitment to shareholders, Paying a dividend of $0.40 per share, our 51st consecutive quarterly dividend. Speaker 400:03:41To summarize, This quarter highlighted the underlying strength of our diversified businesses and the true earnings power of HCI Group. And now I'll turn it over to Mark to provide more details on our financial results. Speaker 500:03:54Thanks, Karen. So as Karen mentioned, pretax income for the 2nd quarter Was $20,300,000 and diluted earnings per share were $1.28 The pre tax income was similar to that of the Q1 this year with one significant difference. In the Q1, we had a gain of almost $9,000,000 from the sale of real estate and this quarter's profit was driven simply from the regular ongoing operations of our insurance businesses In what we see as a strong repeatable operating quarter. In the past few quarters, we've highlighted several positive trends And as you can see from the results, these trends continue to support sustained profitability. The trends we've discussed Our higher average premium per policy, increasing investment income, lower policy acquisition costs And most important, a lower gross loss ratio. Speaker 500:04:53Let's take a look at each of these. First, as was the case in the Q1, Gross premiums earned are up despite policies in force being down driven by rate adjustments made over the past few quarters Combined with the natural attrition of the book. Our consolidated average premium per policy is about 25% higher than it was a year ago, which helps reduce the loss ratio and improve earnings. The second positive trend is that investment income is up. Investment income of $8,800,000 is more than double what it was in the same quarter last year, driven by increasing interest income On fixed term investments and on cash, our investment strategy is working and while our yield is up considerably, we still have a short Term to maturity, which gives us the opportunity to further increase investment income in the coming quarters. Speaker 500:05:47The 3rd positive trend is that policy acquisition expenses are declining as a percentage of gross premiums earned. In Q2, policy acquisition expenses We're 12.4 percent of gross premiums earned, down from 14.8% in the same quarter last year because of lower commissions And the transition of the UPC book. The last and most important trend is a decline in the consolidated loss ratio, Which is following the glide path we've been discussing over the past few quarters. On previous earnings calls, We said we expected a material beneficial impact from the new legislation in Florida and that impact is starting to show up in our results. The consolidated gross loss ratio was 34% this quarter, down considerably from 47.9% in the same quarter last year, Driven by lower claim frequency, flattening claim severity, lower litigation frequency and higher average premium per policy. Speaker 500:06:49I wanted to mention TypTap just for a minute. You may recall that TypTap Insurance Group was profitable in the Q1 and it was a gain in the second, Reflecting the same trends discussed on a consolidated basis, higher average premium per policy, higher investment income And a lower loss ratio. Just a few other quick things. Book value per share increased Significantly from $18.91 at the start of the year to $21.92 at the end of the second quarter. Cash and financial investments at the holding company level were $164,000,000 at the end of the quarter, Up from $140,000,000 at the start of the quarter. Speaker 500:07:33Before turning it over to Paresh, I wanted to step back from the numbers to just add one thing. What I hope comes through in my comments here is that the trends that have led to these results Are the same continuing trends we've been discussing for some time now and we think that they are sustainable. We've managed the business carefully to get to this point And while we can never predict the future, this quarter reflects what we expect to see going forward. And with that, I'll hand it over to Paresh. Speaker 100:08:04Thanks, Mark. Karen talked about our positive Q2 results, and Mark laid out why the results this quarter are sustainable. There are several items that we've talked about on previous calls that I think are worth reviewing. First, we've positioned our investment portfolio to provide investment income in a meaningful and sustainable fashion. By staying on the short end of the curve, We maintain maximum flexibility and we are making a healthy income from that side of the business. Speaker 100:08:372nd, Following legislative reform that was passed last year in Florida, we anticipated that the loss ratio would come down and it has. 3rd, the uncertainty around the availability and affordability of reinsurance is now behind us with the placement of our 2023 reinsurance program. And lastly, a year ago, we took decisive rate action To combat economic inflation and those rate actions continue to work through our book of business. So overall, while earned premium has been roughly level year over year, the profitability of the business has improved considerably. And all of this is important as a backdrop because we now have a healthy stable business. Speaker 100:09:28We can now look to the future and the obvious thing to do is to expand and grow the business, especially in Florida. And that is exactly what we plan to do. We've applied with the Florida OIR for our citizen of the population in the Q4 of this year. We are starting from a baseline of approximately 200,000 policies and $740,000,000 of in force premium throughout the U. S. Speaker 100:09:54At the end of Q2, we will now resume growth to a higher number in the future. In summary, going forward, we are looking to grow our policy count, grow our in force premium And grow our profitability. With that, I will turn over for questions. Operator, please give instructions. Operator00:10:20Absolutely. Thank you. At this time, we will be conducting a question and answer session. One moment please while we poll for questions. The first question comes from Matt Carletti with JMP. Operator00:10:52Please proceed, Matt. Speaker 300:10:56Thanks. Good afternoon. Speaker 600:10:59Hi, Matt. Speaker 100:11:01Hey, good afternoon. I guess first I'll pick up right Speaker 300:11:04where you left off with the news of applying for Citizens Depop. Is there any color you can give us on it sounds like Q4, but in terms of potential kind of The number of policies, the amount of premium that ideally you'd like to execute on? Or is that stay tuned yet to come? Speaker 100:11:25It's a big share of both, but Matt, just so far, the events let everybody know because they'll all be news in 30 days or so anyway. As you know, we've done this many years and there's a process by which we go through. So what we've applied for is 75,000 policies in the month of November, November 21 to be precise. But as you Should also know that is a maximum number the actual number of policies we will get will be some number that is Less than that, it's just the way the process works as you go through the various hoops. And the actual number of policies and premium we will get We'll actually be best known on November 21, the date of the assumption. Speaker 100:12:12It's just we're on that road between now and then. Speaker 300:12:16Yes. Is there anything that can maybe you could offer some guidance there? I mean, we could look to past takeouts you've done. I mean, you've done a lot of them over the Of course, the company, obviously not in recent history, but the market was right for them. But I know there's been some Your legislative changes and rule changes around citizens in terms of people having to go or not go, Any color you can provide there in terms of how that might change the potential conversion rate? Speaker 300:12:45Or if it's just too early to Speaker 200:12:47know, you won't know until you go through Speaker 100:12:51Matt, historically, the numbers have been as high as 65%. The numbers have been as low as 20% and some of that range and that's quite a wide range in between 20% 65%, but that range Is going to is also being affected by new citizens takeout rules that have now come into place And how the method works and everything else and the new regulations where people are more strongly encouraged to leave So given all of those things and we also don't know how many other people are applying for takeouts in November, But there is 1,300,000 policies in Citizens, right? So this is a small drop in the Citizens universe, shall we say. So given all of those things, there is some variability to that number, but you can imagine to a carrier that has 200,000 policies, and 130,000 of which are in Florida, any number is going to be rather significant, yes? Speaker 300:13:56Yes, For sure. That's very helpful. Maybe looking at a bigger picture, I know the focus is Florida and you have a huge opportunity there. But TypTap has expanded outside of Florida and we are seeing a lot of household names kind of recalibrate their appetite Nationally, while this seems climate change related, what I think of HCI as having a lot of experience in a state that Kind of has gone through that over the past 20, 30 years. Is there a longer term opportunity there for HCI or what lessons kind of have you guys learned By operating in the environment that is Florida that maybe you can take elsewhere when the time is right. Speaker 100:14:42Yes. Matt, I think, obviously, reading the headlines in the press releases and the Statements in earnings call from a number of other carriers, etcetera, especially outside Florida, you sort of get the level of angst that is going on. I think if I was to predict what's going to occur, judging by what happened in Florida probably like 15, 20 years The supply and number of people willing to offer policies is going to shrink. Demand isn't going away because every household still needs policies. So supply is going to shrink, demand is going to stay the same or grow. Speaker 100:15:24It will take a while for Premiums to adjust is the new reality that I think everybody is facing using climate changes as an example that you used. But eventually all that will stabilize out and there will be somebody, let's just say by 2,030, We will be providing insurance, and we'll be doing it in a profitable manner, right? It's just between now and then, there will be a lot of Sure. In terms of both who the carrier is and who and what the rates are, that is what I think is starting to Unfold throughout the country. We've seen this movie before because that's exactly what happened in Florida After the 2004, 2005 storms, yes? Speaker 300:16:12Yes. That makes perfect sense. And there's a couple of quick numbers questions if I could probably for Mark. On the policy acquisition costs, you highlighted kind of coming down to around about 12.5% from a couple of points higher a year ago. Are we can we kind of work through the adjustments there in terms of lower commissions in some of the forces or kind of where do you think that could go going forward? Speaker 500:16:36Yes. I think that's about where it's going to be for the foreseeable future unless there's any other changes. It might Drift down a little bit, Matt, but I think the bulk of that improvement that you've seen there is reflected in where we're is in the numbers now. Great. Speaker 300:16:53And then just a quick numbers one. Do you have net written premiums handy? Speaker 500:16:58Yes. So it's 113,600,000 Speaker 300:17:03Great. Thank you very much for all the color and congrats on a nice quarter. Thank Operator00:17:17The next question comes from Mark Hughes with Truist. Mark, please proceed. Speaker 600:17:23Yes, thanks. Good afternoon. Speaker 100:17:26Good afternoon, Mark. Speaker 600:17:28You have come a long way in a short period of time on loss costs. I wonder if you could maybe break out how much might have been more favorable weather in the quarter? How much is Your own pricing initiatives and how much progress is actually tangible progress from the regulatory For, Paresh, I think you said you think losses will get down to the 30% level. Is that Still a good number? Could it go lower based on what we see here? Speaker 500:18:05Hey, Mark. It's Mark. So To the first part of your question about the weather, so there really was not a discernible difference in the weather between Q2 last year and Q2 this year. So the decline in the loss ratio from Q2 last year to the Q2 of this year really didn't have anything to do with weather, right? There's always weather in Q2. Speaker 500:18:32We had a significant amount of weather in Q2 last year. We had a significant amount of weather in the Q2 this year. So that's not the reason that the loss ratio is down. So the loss ratio is down for the 3 or 4 things that I mentioned earlier. And average premium is up, obviously that's going to help. Speaker 500:18:50Frequency is down, which helps. And, the average ultimate cost of a claim is down Because litigation is down. So, those three things work their way through the loss ratio at a different pace. You see the impact of the average premium per policy going up. You see that first. Speaker 500:19:14So that's probably maybe 60%, 65% of the reason For the drop this quarter, the balance being some of the legislative changes. But I think the most important thing to say, and I think I said it in my Comments is we developed an expectation of what we thought would happen to the loss ratio When we when the legislation came out, and that is still our expectation, what we've seen in the first half of the year is Consistent with what we saw, frequency is coming down, litigation is coming down. And to your point about the 30%, I think Paresh and I have both mentioned We think the consolidated loss ratio will come down from about 40% to about 30% And yes, it would take some time to get there, but we still feel that that's where we're headed. So the trends are moving in the right direction And we're really encouraged by the progress. Speaker 600:20:16How much and thanks for that detail. How much are you going to pursue voluntary business as the year progresses? Are you going to Be more dependent or look to drive growth on the takeout, the acquisition cost is certainly Pretty attractive. Is that going to be the focus? Speaker 100:20:41Mark, it's Parrish. Regarding that, I think we are doing voluntary business anyway. It's just how it runs through the book is where the numbers become different. The takeout is A opportunity that we've anticipated for a while and we've actually communicated on previous calls and is now here and we are taking advantage of it. It's almost like in addition to the other things we've been doing. Speaker 100:21:09So we are I guess the overall theme that we're trying to communicate is 2 quarters of the rationalization got passed. We people were asking, hey, what will this mean? How much impact will you see? People were trying to get it quantified. And we made We modeled things and we've tried to do forecast where things were going to be and how things will evolve. Speaker 100:21:36And I think what we're telling you halfway through the year Things are working out fairly much like we had said, and now it's actually showing up in the numbers the way we had said it. And then the follow-up actions we had Said we would take when that was achieved is what we're laying out for the back half of the year, yes? Speaker 600:21:58Yes, understood. The premiums ceded, what can say a good run rate with the new reinsurance In place in terms of the dollars here. Speaker 500:22:11Yes. It's Mark. Pretty similar to what it is in Q2. We issued an 8 ks, I think it's $67,000,000 in change, very close to what it was in yes, actually just about $67,000,000 So very similar to what it was in Q2. Speaker 600:22:32Okay. Any change in the I think last quarter you talked about your Prior pattern of kind of boosting up reserves a little bit on a quarterly basis, and I think you shifted away from that. Is that Was there any impact from that when we think about the loss ratio? Speaker 500:22:51Not really. I mean, we had net reserves Are pretty flat, so far this year. We didn't really have much adverse development In the Q1, we booked a little bit less than $1,000,000 There's really there's not much going on there. I Reserves for the most incurred for the most part are coming in where we expected them to. And so we're not having to really make any adjustments for prior periods. Speaker 500:23:21And we're keeping net reserves pretty flat for now. There's some indications that they could be starting to come down, but so far we're keeping them flat. Speaker 600:23:31Yes. The TypTap written in the quarter was down year over year. Is that nonrenewable of flood business? What was driving that? Speaker 500:23:40Yes, there's a little bit of noise in there, Mark. It's part of it is flood, About $8,000,000 of it was slug because we had about $4,000,000 of written premium in Q2 last year and we had negative written premium this year Just because there was a return of some of the unearned premium, so that's part of it. And the other is UPC Southeast, so the written premium was down in the second quarter for that and that was just kind of a timing thing you may remember With the UPC changes at UPC, We renewed a lot of the policies that would normally have renewed in Q2 were renewed in Q1. And so we had Higher earned higher sorry, written premium in Q1 and then less in Q2. And Q2 for UPC Southeast was actually a little bit negative. Speaker 500:24:40So there's a lot of noise in the Q2 written numbers that make it a little bit hard to follow. But in Q3, we'll be back to sort of the normal pattern of written premium. Speaker 100:24:53How much cash at the HoldCo? Speaker 500:24:57So as I mentioned, cash and financial investments at the holding company level is about 164,000,000 I think the cash component of that is about $135,000,000 something like that. Speaker 600:25:13Okay. Great. Thank you very much. Speaker 500:25:17Thanks, Mark. Operator00:25:39Okay. We have a couple of questions in queue. The first coming from Lee Currie with Currie Partners. Please proceed. Speaker 700:25:46Good afternoon, Paresh and all your group. What an outstanding quarter, very pleasant. I want to get an idea from you on how the whole Reinsurance environment is shaking out. I know there's been a lot of changes in different directions. Now that you've completed it and seen how it Had ended up last month, what's the outlook going forward from that? Speaker 100:26:11Lee, So a simple answer about the reinsurance outlook, and I didn't make it in my prepared remarks was that Beginning of the year, there was some uncertainty about the availability and affordability of reinsurance, right? Right. And all of that speculation goes on. And I think From what Mark has said and Karen has said and what was released in the 8 ks, we placed our reinsurance program because we had anticipated these changes, etcetera. The numbers are there. Speaker 100:26:40It's now on the 8 ks. So at least for us, we don't have a reinsurance variability anxiety For until next June at the earliest, yes. The other thing on a general reinsurance industry thing, I think, which is the nature of your question, I think the anxiety level amongst reinsurers, at least in terms of Florida, Seems to have abated, especially in by what happened in May. I think there are lots of Reinsurance availability is now starting to normalize. Affordability is a different price, but that's just what that is, yes? Speaker 700:27:26Thank you, Paresh. Well done. Speaker 100:27:28Thank you. Good hearing your voice again, Lee. Operator00:27:34Okay. We have a follow-up coming from Mark with Truist. Mark, please proceed. Speaker 600:27:41Yes, thank you. Just wanted to make sure I was clear on the depots. It's been a while. You Take the premium, whatever you end up being successful on. And then the really no reinsurance associated reinsurance costs or acquisition costs until those Policies, well, until you get to the next storm season or when the policies renew, Is that the right way to think about the financial impact? Speaker 100:28:16Yes. And Mark, I'll split hairs with you. So when you do an assumption, you will book GWP on the assumption date of whatever earn on premium there was. The acquisition cost will be 0 until those policies expire and renew onto our paper, At which point it will go back to normal. And the reinsurance cost on those policies with occasional with very few exceptions Will be 0 till June 1 next year. Speaker 100:28:50Yes? Speaker 600:28:50Yes. Speaker 100:28:51So 3 components move in slightly different ways, but just so you know, yes? Speaker 600:28:56Yes. Any kind of subjective commentary about the quality of the policies In Citizens Now, with the increase, how do you How fertile is the takeout opportunity? Speaker 100:29:17I think the way I would characterize it is Citizens has 1,300,000 policies, if I remember correctly, at the end June, right. That's a lot of policies. We are talking about trying to pick At most, 75,000 policies or if you had said 65,000 policy, it would be 5% of the book, right? Can we find Yes, 5% that we like out of that big of a pool. We like our chances, yes? Speaker 100:29:50But that is I'm not commenting on the entire poll. My sole mission is can I find 75,000 policyholders that we might want as HCI customers and the answer would be yes? Speaker 600:30:09Understood. Thank you. Operator00:30:27We have no further questions in queue. At 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 100:30:39Yes. On behalf of the entire management team, I would like to thank our shareholders, employees, Agents and most importantly, our current policyholders as well as our anticipated future policyholders for their continued support. We look forward to updating you on our progress in the coming quarters. Thank you, everyone. Operator00:31:05At this time, this concludes our question and answer session. This concludes today's call. You may now disconnectRead morePowered by