HCI Group, Inc. (NYSE:HCI) Q3 2025 Earnings Call Transcript

HCI Group, Inc. (NYSE:HCI) Q3 2025 Earnings Call Transcript November 6, 2025

HCI Group, Inc. beats earnings expectations. Reported EPS is $4.9, expectations were $2.44.

Operator: Good afternoon, and welcome to HCI Group’s Third Quarter 2025 Earnings Call. My name is Ali, and I will be your conference operator. [Operator Instructions] 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 December 6, 2025, starting later today. The call is also being broadcast live via webcast and available via webcast replay until November 6, 2026 on the Investor Information section of HCI Group’s website at www.hcigroup. I would now like to turn the call over to Nat Otis, HCI Group. Nat, please proceed.

Nat Otis: Thank you, and good afternoon. Welcome to HCI Group’s Third Quarter 2025 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’d 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. 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 risk or uncertainties develop into actual events, these developments could have material adverse effects on the company’s business, financial conditions and 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 Karin Coleman, Chief Operating Officer.

Karin Coleman: Thank you, Matt. Good afternoon, everyone, and thank you for joining us today. We’re pleased to report another quarter of strong financial results, reflecting our continued focus on disciplined execution, profitable growth and delivering value for our shareholders. Highlights for the third quarter include reported earnings of $4.90 per share, net combined ratio of 64%, total shareholders’ equity of $821 million with book value per share increasing more than 50% year-to-date to $63 per share and a 22% loss ratio as the weather in Florida remained favorable as we move through the remainder of the 2025 hurricane season. In addition to these financial achievements, we had several other important developments in the quarter.

A three-building campus in Tampa owned by Greenleaf Capital, our real estate division had its tenant move in and the entire campus is now fully leased. This allows flexibility to explore financing options for the property to optimize returns for shareholders. During the quarter, Greenleaf also added to its portfolio by acquiring a new complex in Pinellas County, Florida. We continue to identify opportunities that can deliver sustainable long-term value for the shareholders. Lastly, in September, Exzeo added a fifth carrier to its platform, its first non-HCI-controlled carrier. In addition to these notable accomplishments, we’ve continued to make strong progress on several other initiatives in the first few months of the fourth quarter. In October, we successfully assumed over 47,000 policies from Citizens, representing about $175 million of in-force premium.

With the strong outcome in October, we do not plan to participate in the December assumption from Citizens. We recently entered into a new credit facility with Fifth Third Bank, which will significantly increase the amount of credit available to HCI. Mark will go into more details on that. And finally, earlier this week, Exzeo successfully completed its initial public offering. We are excited about Exzeo’s future prospects, and we look forward to HCI remaining a significant shareholder of Exzeo for the foreseeable future. Mark and Paresh will provide additional details in their remarks. Looking ahead, we remain committed to delivering strong earnings compounding book value per share and generating attractive returns for our shareholders. Now I’ll turn it over to Mark to provide more details on our financials.

Mark Harmsworth: Thanks, Karin. Pretax income for the third quarter was just over $90 million. And as Karin mentioned, diluted earnings per share were $4.90. Year-to-date, pretax income is $285 million compared to $167 million for the first 9 months of last year, an increase of more than 70%. Let’s talk about the loss ratio for a minute. When comparing to the third quarter of last year, you have to remember that Hurricane Helene happened last quarter, for that quarter. If we adjusted for that, the loss ratio in the third quarter last year would have been about 25%. In the third quarter this year, the loss ratio was down to 22%, reflecting lower quarter-over-quarter claim frequency. The combined ratio this quarter was 64%, reflecting the lower loss ratio and lower operating expenses as a percentage of premiums.

The combined ratio this quarter is a little lower than the 70% we’ve discussed a few times as the loss ratio this quarter was a little lower than expected. Now let’s look at the balance sheet for a minute, which continues to improve. Cash and investments are up by around $334 million so far this year. Long-term debt is now only $32 million, shareholder equity of well over $800 million has almost doubled since the start of the year. Debt to cap has dropped to 8% and book value per share is up more than 50% so far this year to more than $63. Our strong balance sheet should continue to provide comfort to our policyholders and our shareholders should take comfort in our efficient use of capital as our after-tax return on equity continues to be over 30%.

Our strong balance sheet has also allowed us to negotiate better terms with our credit partner, Fifth Third Bank. As Karin mentioned, we recently renegotiated our credit facility, and in doing so, doubled the size of the facility from $75 million to $150 million and released all of the real estate collateral that had secured it. In summary, this was another strong quarter and a very strong year for the company. Our operating ratios are all improving. The balance sheet continues to get stronger. We’re generating superior returns, and we’re poised for additional profitable growth with the recent Citizens assumptions. And with that, I’ll hand it over to Paresh.

Paresh Patel: Thanks, Mark. Karin and Mark talked about the last quarter. But as we all know, the big event was the one that occurred earlier this year — earlier this week. For the last 2 years, we have been choreographing a complicated sequence of steps to begin to unlock the true value of Exzeo, our organically grown internally developed insurance platform. And HCI investors have exhibited both patients and support while we went about this. And with Exzeo’s IPO earlier this week, we have completed the last step in this sequence. And while we are already focused on what we’re doing next, it’s important to step back for a moment to reflect and more importantly, to quantify the meaningful financial benefit of the Exzeo IPO to HCI shareholders. Mark, can you please provide the details.

Mark Harmsworth: Sure. So in that IPO that Paresh just mentioned, Exzeo issued 8 million new shares at a price of $21 per share and the net proceeds were about $155 million. In addition to those 8 million shares, there’s a potential overallotment of another 1.2 million shares, which I’m not including in any of the numbers that I mentioned here. In the offering, HCI did not sell any of its shares in Exzeo. We owned 75 million shares before the IPO, and we own 75 million after it. Because of our ownership position, we will continue to consolidate Exzeo into the financial statements of HCI as we’ve always done, that there will be a couple of impacts. First, when calculating earnings per share, net income attributable to noncontrolling interest will increase slightly, and therefore, diluted earnings per share will decline slightly.

If the IPO had happened at the start of Q3 as an example, the impact to diluted earnings per share would have been less than $0.15. Second, when we booked the IPO in Q4, there will be a significant increase in the consolidated book value and book value per share of HCI, resulting from the net proceeds of the IPO. Book value will go up by about $125 million and book value per share will go up by about $10. By the end of this year, we expect HCI’s book value to be over $1 billion and book value per share to be close to $80. This is a tremendous achievement driven by careful capital management and profitable growth. However, that book value will not include any of the unrealized gains on our ownership of Exzeo shares. We own 75 million shares of Exzeo and you can see at any time what they’re trading for.

But we will have them on the books for less than $3 a share because they’re recorded effectively at cost. If you get out a calculator and do the math, you’ll see that difference is more than the entire book value of HCI. This is an exciting transaction for the shareholders of both companies, and we look forward to the continued innovation growth and success of EXO. And with that, I’ll hand it back to Karin.

Karin Coleman: Thanks, Mark. To wrap things up, we’re very pleased with how our businesses continue to perform. HCI’s insurance and reinsurance operations continue to grow and deliver solid results. Our real estate assets have significant embedded value while also delivering meaningful returns and our investment portfolio continues to be an important source of strong and stable income. Lastly, we were excited to see Exzeo’s successful IPO earlier this week as the transaction partially unlocked the intrinsic value of that company. As Mark pointed out, though, we did not sell a single share in the IPO because we believe that this is just the beginning of a successful journey for that company. In short, we’re very pleased with both HCI’s results as well as Exzeo’s successful IPO. With that, I’ll turn the call over for questions. Operator?

Operator: [Operator Instructions]. Our first question is coming from Michael Phillips with Oppenheimer.

Q&A Session

Unknown Analyst: This is Amir in for Mike. I just had a question around Citizens. Can you guys please give us an update on the 75,000 policies you guys applied to take out for Citizens for each 3 of the subsidiaries. Or in other words, like how many of the 25,000 are you guys expecting to write? And just subsequently for homeowners choice, what is an expected average policy size of those takeouts?

Karin Coleman: I think we had a total of 47,000 policies that are in that October takeout.

Paresh Patel: We applied for 75,000. We got…

Karin Coleman: Right. We applied for 75,000, but we ended up with the 47,000 mentioned in the script.

Paresh Patel: And I think Homeowners Choice got about 19,200 — sorry, Homeowners Choice got about 19,500, Tailrow got about just over 19,000 and TypTap got a little bit over 8,000.

Unknown Analyst: That’s great. And just one last question on my side. Would you guys be able to share any expected use of cash on balance sheet over the coming years for Homeowners Choice or any more possible aggressive state of — state expansion or potential M&A?

Mark Harmsworth: It’s Mark. I mean I don’t think we can get too specific. But I mean I talked in my in my prepared remarks about the strong capital position. There’s also a really strong surplus position in the underwriters. And without getting too specific, we grew by 15% or so this year. We’ve got lots of opportunities for both ahead of us for the year coming up, and we will grow, and we’ve got the capital to do that. So 2026 is going to be a good year.

Operator: [Operator Instructions] Our next question is coming from Mark Hughes of Truist.

Mark Hughes: Mark, how much cash at the holding company?

Mark Harmsworth: So total holding company liquidity at the end of September, I think, was about, about $285 million total.

Mark Hughes: Okay. And then the — why not do the December takeout? You had a good success for October. Is that — why not go for more next month?

Paresh Patel: Mark, great question. The reality of it is, I think Citizen is now shrinking. For the record, I think Citizen is no longer the largest insurance carrier in the state anymore. It’s dropped down the rankings quite a bit. And by the time you get around to December, I’m not saying there won’t be enough policies there, but I think we have a lot more — we’re already thinking about other things beyond Citizens. And it just seemed like a little bit of a distraction to still be saying you are — keep going back to a well that is dried up that much. If you wanted Citizens policies really, you would have done it 2 years ago, which we did.

Mark Hughes: Yes. The expense ratio was quite good in the quarter, both G&A and other operating expenses were down. Anything unusual this quarter? Or is that just leverage?

Mark Harmsworth: Yes. So thanks for the question, Mark, it’s Mark. I mean, no, there’s nothing unusual in Q3. It’s just a continuation of what we’ve been talking about before about operational leverage and the importance of technology we’ve been able to grow without really adding any people and that results in flattish operating expenses while revenue keeps going up. So revenue was up 13%. Operating expenses don’t go up that much. And it’s just that operational leverage we’ve been talking about for a while, there’s nothing unusual at all in Q3.

Mark Hughes: Yes. When we think about modeling the Exzeo impact and the minority interest. Essentially, we’re accounting for 8 million shares out of Exzeo’s earnings those will be pulled out as minority interest. And so on a go-forward basis, we’ve got to think about the ratio of Exzeo versus HCI earnings when we think about what we should use as the basis to calculate the minority earnings. Any rules of thumb or anything you might suggest as we contemplate that?

Mark Harmsworth: Yes. I mean it’s pretty straight. It’s Mark again. It’s pretty straightforward. If you just pull out, for example, and I gave an idea on the call about the $0.15 a little bit less than that. That’s what the impact would have been if the IPO would have happened on July 1. So if it would have had full effect in Q3. It’s not a very big effect. So if you think about — even in the press release, we’ve got an earnings per share calculation there, and there’s that little part there where we back out the minority interest of a number of companies, including Exzeo, that number would be — it wouldn’t be twice as big as it is. It would be a little bit less than that. And then you just do the calculation as you would normally do it. So that negative $2 million that you see there in the press release. Just if you want a rule of thumb, say double that. And that’s how you do EPS. It’s pretty straightforward.

Mark Hughes: Yes. Do you have — I assume it’s broken out in the queue, the net income for Exzeo versus the Homeowners Choice?

Mark Harmsworth: It will be in the segmented report in the queue that’s published tomorrow.

Mark Hughes: Okay. Very good. And then anything to say on the Exzeo pipeline, just kind of an update on the business there. I understand if there’s nothing you can or in position to say at this time, but anything about the pipeline of business, growth prospects for Exzeo that you’re able to share?

Paresh Patel: Yes. Mark, it’s Paresh. I think going forward, we’re going to be trying to keep this call about HCI and just basically our HCI feels about Exzeo’s [indiscernible] its ownership of Exzeo as opposed to the pipelines and discussing Exzeo things, because now that Exzeo’s public, Exzeo will shortly hold its own quarterly earnings calls, et cetera, and that’s where all those things will come in. But having said all of those things, very simple thing. There continues to be outsized interest in people joining the Exzeo platform. And I believe they’ve announced that they’ve already got a second customer already, but it was subsequent to the end of Q3. And the pipeline will go — we have to start somewhere and the pipeline grows from there, and it seems to be doing it very healthily.

Mark Hughes: Very good. I appreciate that and understand your preference going forward. Mark, the — I’ll try to take one more in. Mark, the loss ratio, 25% in this quarter last year, ex-Helene to 22%. How much of that might have been weather mix? Could you maybe give a little bit more on the improvement there?

Mark Harmsworth: No. I mean, the weather was pretty consistent, Weather was fairly good third quarter last year, third quarter this year. It was really just frequency, claims frequency was down from — it was, I think, 3.7% annualized, 3.7% in the third quarter last year, 3.4% in the third quarter of this year. And that’s what drove the loss ratio lower. Really nothing else going on just lower claim frequency. And weather was not — I mean, there’s always weather, but weather was not a factor one way or the other from one quarter to the next.

Operator: [Operator Instructions] Our next question is coming from [indiscernible] with Citizens.

Unknown Analyst: I’m calling in for Matt Carletti, and a lot of the questions have already been answered. But just one question to clarify the October take-out, you mentioned it’s $175 million in force premium. Is that roughly the same as the annualized premium regarding those takeouts? And then how much of that is unearned premium that has been recognized in Q4?

Mark Harmsworth: So it’s Mark. So yes, so the number that Karin gave, that’s basically the annualized premium or the premium in force or whatever you want to call that. And in terms of how much of that is unearned. So that will be the amount of cash that we get and the amount that will be written in Q4, it’s about — yes, it’s about 60% of that number. Now — and then, of course, in terms of how that will get earned, that will just get earned evenly over the next — the $175 million is what — when you’re modeling earned premium, it’s the $175 million that matters, not how much of it is earned and unearned in Q4. It’s the $175 million that you need to model.

Unknown Analyst: Okay. And you said 60%?

Mark Harmsworth: Yes. It’s about that. That’s pretty normal. Yes. The 60% of the $175 million, that’s your unearned.

Operator: At this time, this does conclude our question-and-answer session. I would now like to turn the call back over to Karin Coleman for a few closing remarks.

Karin Coleman: On behalf of the entire management team, I’d 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. Thank you.

Operator: Thank you. At this time, this will conclude today’s call. You may disconnect your lines at this time, and we thank you for your participation.