HCI Group, Inc. Q3 FY2024 earnings call

1. Impacted by 3 hurricanes (Debby, Helene, Milton) which produced over 10,000 claims and expected to pay hundreds of millions. 2. Third quarter had pretax income of $14M and diluted EPS of $0.52 with a strong underlying business. 3. Successfully added ~42,000 policies from Citizens ahead of schedule. 4. Not looking to increase rates in Florida at this time. 5. Balance sheet strengthening: cash and investments up $490M in 12 months ended Sep 30, shareholder equity more than doubled, book value per share almost doubled, debt to cap cut in half, company grown by ~40%. 6. Fourth quarter expected to have net expense of $128M from Milton, with underlying profitability higher than third quarter due to premium growth from Citizens assumption.

In the third quarter of 2024, HCI Group had pretax income of $14 million and diluted earnings per share of $0.52. The underlying combined ratio was 70%. The underlying loss ratio this quarter was a little under 25%. Subsequent to the third quarter, HCI successfully added approximately 42,000 policies from Citizens, with the expected in-force premium from this assumption around $200 million, adding an additional $35 million to gross premiums earned in the fourth quarter.

1. Fourth quarter expected net expense from Milton to total $128M including reversal of benefits under multiyear reinsurance agreement. 2. Underlying profitability in fourth quarter higher than third quarter. 3. Total in-force premium from Citizens assumption around $200M, adding $35M to gross premiums earned in fourth quarter. 4. Book value per share expected to be back to end of September level by end of January or February. 5. Holding company liquidity: total cash and financial investments over $200M in third quarter.

1. Impact of hurricanes and other catastrophic events on claims and financial results. 2. Uncertainties related to future storm seasons and their impact on business, financial conditions, and results of operations.

Q: Paresh, I was hoping you might be able to offer some observations on Milton just specifically how we should think about it?

A: Milton's actual claim counts are roughly between 1/2 to 2/3 the size of Ian's, even with more policies, due to Milton not being as severe as Ian.

Q: It's about the takeouts and just maybe what insights you might have on the conversion was very strong, even stronger than we saw last year, which was stronger than kind of historical. Just why you think that might be?

A: High take-up rate due to the brand HCI - Homeowners Choice and TypTap have built up, and their technology ensuring only those who wanted to come with them were selected.

Q: Mark, the -- I think you suggested the incremental $35 million in premium in the fourth quarter from the takeout and we're working off of a base of what, $265 million, $266 million in the third quarter. And then the $200 million, was that the kind of when you have it for a full quarter, it would be at $35 million would be more like $50 million, is that the way to read it?

A: Yes, it's a little bit prorated for Q4.

Q: What kind of -- What kind of premium ceded should we think about for kind of on a run rate basis, either absolute dollars or percentage.

A: The normalized premium ceded number is about $102 million, except for the adjustment for Milton.

Q: How much cash at the holdco?

A: Over $200 million.

Q: Your comment about the new carrier. Refresh me on -- and I might have missed some of your comments today, but the new carrier, the size, intent, what area we're targeting.

A: It's a reciprocal based in Florida, to be fully operational by early 2025, part of the company's growth strategy.

Q: I guess I wanted to ask a little bit about the comments about rates in Florida and your strategy for at least the coming year not to raise rates. Does that signify I guess, a desire on your part, excluding all the depop business you're getting to grow in Florida ex the depop stuff?

A: We are not looking to raise rates in 2025 in Florida as we don't see a need to do so, and it's to help policyholders rebuild and maintain relationships.

Q: I guess 1 more, a little maybe more higher level would be, a large part of your strategy, obviously, has been at least for the past year and longer, of course, it comes and goes, but this year has been a big part of your story is the depop business. And I'm sure that's always going to be present at some point in future years. But if you put that aside, what's next for HCI? Kind of what's the next strategy?

A: The company has figured out risk selection and underwriting to be climate-adapted, and can look to grow in other parts of the country where opportunities occur, allocating capital to where they can get the highest ROE.