Q4 2025 HCI Group Inc Earnings Call

February 25, 2026

Operator: Good afternoon, welcome to HCI Group's Q4 2025 Earnings Call. My name is Tom. 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, will be available for replay through 25 March 2026, starting later today. The call is also being broadcast live via webcast and available via webcast replay until 25 February 2027, on the Investor Information section of HCI Group's website at www.hcigroup.com. I would now like to turn the call over to Nat Otis, HCI Group. Nat, please proceed.

Speaker #1: Good afternoon and welcome to HCI Group's fourth quarter 2025 earnings call. My name is Tom, and I will be your conference operator. At this time, all participants will be in a listen-only mode.

Speaker #1: 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 March 25, 2026, starting later today.

Speaker #1: The call is also being broadcast live via webcast and is available via webcast replay until February 25, 2027, on the investor information section of HCI Group's website at www.hcigroup.com.

Speaker #1: I would now like to turn the call over to Nat Otis, HCI Group. Nat, please proceed.

Speaker #2: Thank you and good afternoon. Welcome to HCI Group's fourth quarter 2025 earnings call. To access today's webcast, please visit the investor information section of our corporate website at www.hcigroup.com.

Nat Otis: Thank you and good afternoon. Welcome to HCI Group's Q4 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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 in actual events, these developments could have materially adverse effects on the company's business, financial conditions, and results of operations.

Nat Otis: Should any risks or uncertainties develop into actual events, these developments could have materially 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 will turn the call over to Mark Harmsworth, Chief Financial Officer.

Speaker #2: HCI Group disclaims all obligations to update any forward-looking statements. Now, with that, I will turn the call over to Mark Harmsworth, Chief Financial Officer.

Speaker #3: Thanks, Nat. Good afternoon, everyone, and thank you for taking the time to join our call. As we disclosed in the earnings release, pre-tax income was $144 million in the fourth quarter, and $429 million for the full year.

Mark Harmsworth: Thanks, Nat. Good afternoon, everyone, and thank you for taking the time to join our call. As we disclosed in the earnings release, pretax income was $144 million in Q4 and $429 million for the full year. Diluted earnings per share were $7.25 for Q4 and $22.72 for the year. Gross premiums earned in Q4 were up 12% from the same quarter last year and were up 14% for the full year. The gross loss ratio in Q4 was 15.6%. While this includes a modest amount of favorable development from prior periods, with that added back, the normalized loss ratio was 17.5% for Q4 and only 20% for the full year.

Speaker #3: Diluted earnings per share were $7.25 for the quarter, and $22.72 for the year. Gross premiums earned in the fourth quarter were up 12% from the same quarter last year, and were up 14% for the full year.

Speaker #3: The gross loss ratio in the fourth quarter was 15.6%. While this includes a modest amount of favorable development from prior periods, with that added back, the normalized loss ratio was 17.5% for the fourth quarter and only 20% for the full year.

Speaker #3: For the past three years now, claims and litigation frequency have continued to decline resulting in a loss ratio that has been lower each successive year.

Mark Harmsworth: For the past three years now, claims and litigation frequency have continued to decline, resulting in a loss ratio that has been lower each successive year, illustrating the positive impacts of the legislative reform, as well as our disciplined underwriting. The combined ratio was less than 45% in the Q4. There is some noise created by the Citizens' assumptions that we did in the Q4. We booked some favorable loss development, as I mentioned, and a few other things. If we adjust for all of this, the normalized combined ratio was less than 60% for the Q4. Let's turn to the balance sheet for a minute. Growth in earnings, combined with prudent capital management, have resulted in a fantastic balance sheet.

Speaker #3: Illustrating the positive impacts of the legislative reform, as well as our disciplined underwriting. The combined ratio was less than 45% in the fourth quarter.

Speaker #3: There is some noise created by the citizens' assumptions that we did in the fourth quarter, we booked some favorable loss development, as I mentioned, and a few other things, but if we adjust for all of this, the normalized combined ratio was less than 60% for the fourth quarter.

Speaker #3: Let's turn to the balance sheet for a minute. Growth in earnings combined with prudent capital management have resulted in a fantastic balance sheet. Shareholder equity at the end of the year was over $1 billion, and has more than tripled in just two years.

Mark Harmsworth: Shareholder equity at the end of the year was over $1 billion and has more than tripled in just 2 years. Book value per share is now over $80. This does not include any unrealized gains on real estate or on our investment in Exzeo. If these were to be included, pro forma book value would be about $140 per share. Cash flow continues to be strong. Over the past 2 years, we've generated more than three-quarters of a billion dollars in cash from operations, consolidated cash at the end of the year was over $1.2 billion. In terms of holding company liquidity, we have $175 million of liquidity at the HCI level. This does not include the 75 million shares we own of Exzeo, which now trade publicly.

Speaker #3: Book value per share is now over $80. This does not include any unrealized gains on real estate, or on our investment in Exio. If these were to be included, pro forma book value would be about $140 per share.

Speaker #3: Cash flow continues to be strong. Over the past two years, we've generated more than three-quarters of a billion dollars in cash from operations, and consolidated cash at the end of the year was over $1.2 billion.

Speaker #3: In terms of holding company liquidity, we have $175 million of liquidity at the HCI level. This does not include the $75 million in shares we own of Exio, which now trade publicly.

Speaker #3: In addition to the strong liquidity position at the holding company level, the consolidated surplus in the underwriters has never been stronger. We now have well over half a billion dollars of surplus in the underwriters.

Mark Harmsworth: In addition to the strong liquidity position at the holding company level, the consolidated surplus in the underwriters has never been stronger. We now have well over a half a billion dollars of surplus in the underwriters. The gross leverage ratio is only 2.5, leaving plenty of room for additional growth without the need for new capital. Our strong balance sheet should continue to provide comfort to our policyholders, and our shareholders should take comfort in our efficient use of capital. Our after-tax return on equity over the past three years, a period of time that included three hurricanes, is over 35%. In summary, this has been another fantastic quarter and year for the company. Revenue is growing, the loss ratio and expense ratios are declining, we are generating record cash flows, have minimal debt, and we are generating superior returns on capital.

Speaker #3: The gross leverage ratio is only 2.5, leaving plenty of room for additional growth without the need for new capital. Our strong balance sheet should continue to provide comfort to our policyholders, and our shareholders should take comfort in our efficient use of capital.

Speaker #3: Our after-tax return on equity over the past three years—a period of time that included three hurricanes—is over 35%. In summary, this has been another fantastic quarter and year for the company.

Speaker #3: Revenue was growing, the loss ratio and expense ratios are declining, we are generating record cash flows, have minimal debt, and we are generating superior returns on capital.

Speaker #3: With that, I'll hand it over to Karin.

Mark Harmsworth: With that, I'll hand it over to Karen.

Speaker #4: Thank you, Mark. In addition to the impressive financial results that we delivered in the fourth quarter, it is important to remember that, in the quarter, HCI also completed the IPO of Exio.

[Company Representative] (HCI Group): Thank you, Mark. In addition to the impressive financial results that we delivered in Q4, it is important to remember that in the quarter, HCI also completed the IPO of Exzeo. We currently own 82% of Exzeo's outstanding shares, representing an almost $1.2 billion stake in that company. The Exzeo platform is a tremendous asset for us, placing HCI well in front of the curve as automation and AI integration redefine the insurance industry. Also, in Q4, we successfully assumed 47,000 policies from Citizens, representing more than $175 million of in-force premiums. For the full year, we assumed 60,000 policies from Citizens. The October assumption gave us the strategic opportunity to pre-fund growth for 2026, as we now start the year already ahead of 2025 on our in-force premiums.

Speaker #4: We currently own 82% of Exio's outstanding shares, representing an almost $1.2 billion stake in that company. The Exio platform is a tremendous asset for us, placing HCI well in front of the curve as automation and AI integration redefine the insurance industry.

Speaker #4: Also in the fourth quarter, we successfully assumed 47,000 policies from citizens, representing more than 175 million dollars of in-force premiums. For the full year, we assumed 60,000 policies from citizens.

Speaker #4: The October assumption gave us the strategic opportunity to pre-fund growth for 2026, as we now start the year already ahead of 2025 on our in-force premiums.

Speaker #4: On the reinsurance front, we prudently chose not to lock in multi-year rates in recent treaty years, or through cap bonds, in anticipation of reinsurance market softening.

[Company Representative] (HCI Group): On the reinsurance front, we prudently chose not to lock in multiyear rates in recent treaty years or through cat bonds in anticipation of reinsurance market softening. Early indications are this was the right approach. For our June 1 renewal, we continue to work with our reinsurance partners to lock in more favorable terms. Layering in new business before the year begins, and using expense levers to drop more to the bottom line gives us greater flexibility and readies us for future growth. First, as a reminder, HCI has historically been successful in taking advantage of market instability and dislocation. Following record results in 2025, increased competition and a much smaller number of policies and Citizens may put pressure on other industry participants who are more constrained in growing their businesses. In this environment, we see many opportunities for strategic acquisitions, but must remain patient as pricing rationalizes.

Speaker #4: Early indications are this was the right approach. For our June 1 renewal, we continue to work with our reinsurance partners to lock in more favorable terms.

Speaker #4: Layering in new business before the year begins and using expense levers to drop more to the bottom line, gives us greater flexibility and readies us for future growth.

Speaker #4: First, as a reminder, HCI has historically been successful in taking advantage of market instability and dislocation. Following record results in 2025, increased competition, and a much smaller number of policies in citizens, may put pressure on other industry participants who are more constrained in growing their businesses.

Speaker #4: In this environment, we see many opportunities for strategic acquisitions but must remain patient as pricing rationalizes. Second, as we also continue to look at new markets to enter where our experience, expertise, and cutting-edge technology differentiate us from the competition.

[Company Representative] (HCI Group): As we also continue to look at new markets to enter, where our experience, expertise, and cutting-edge technology differentiate us from the competition. For example, we continue to monitor California's efforts to reform the insurance industry, since we see similarities in that market to the one we have successfully operated in for many years. As a reminder, HCI Group has navigated through years of market uncertainty, the highest state litigation propensity in the nation, regulatory challenges related to Citizens' depopulations, and competition from below-market rates, not to mention the high-risk weather environment in Florida. As we wait for things to materialize, we are taking the opportunity to invest in ourselves. We are finalizing and expect to announce a new $80 million share repurchase program in the coming days.

Speaker #4: For example, we continue to monitor California's efforts to reform the insurance industry since we see similarities in that market to the one we have successfully operated in for many years.

Speaker #4: As a reminder, HCI Group has navigated through years of market uncertainty, the highest state litigation propensity in the nation, regulatory challenges related to Citizens' depopulations, and competition from below-market rates.

Speaker #4: Not to mention the high-risk weather environment in Florida. Lastly, as we wait for things to materialize, we are taking the opportunity to invest in ourselves.

Speaker #4: We are finalizing and expect to announce a new $80 million share repurchase program in the coming days. We view this as an internal M&A, because where else can we buy a company that trades at our discount with a return on equity consistently above 30%?

[Company Representative] (HCI Group): We view this as an internal M&A, because where else can we buy a company that trades at our discount with a return on equity consistently above 30%? With that, let me turn it over to Parrish for some final thoughts.

Speaker #4: With that, let me turn it over to Parrish for some final thoughts.

Speaker #5: Thanks, Karen. You've heard the numbers, and as you can see, 2025 was another phenomenal year for HCI. These numbers are not thereby accident. They are the result of careful planning and execution, and, more importantly, they are sustainable over time and we believe we can build off of them.

Paresh Patel: Thanks, Karen. You've heard the numbers, and as you can see, 2025 was another phenomenal year for HCI. These numbers are not there by accident. They are the result of careful planning and execution, and more importantly, they are sustainable over time, and we believe we can build off of them. As Karen mentioned, the assumptions we did late in the year last year set us up to continue to grow in 2026, and there are also a number of other opportunities for us to accelerate that growth. The future looks bright. We can grow organically. We can grow by acquiring books. We can grow into new markets. We have done this consistently over a long period of time. In the meantime, we are investing in ourselves through the share buyback program that Karen discussed. Why are we doing this?

Speaker #5: As Karin mentioned, the assumptions we made late in the year last year set us up to continue to grow in 2026. And there are also a number of other opportunities for us to accelerate that growth.

Speaker #5: The future looks bright. We can grow organically. We can grow by acquiring books. We can grow into new markets. We have done this consistently over a long period of time.

Speaker #5: But in the meantime, we are investing in ourselves through the share buyback program that Karen discussed. And why are we doing this? Because we feel this is a great opportunity to invest in the company with a superior ROE at a significant discount.

Paresh Patel: Because we feel this is a great opportunity to invest in the company with a superior ROE at a significant discount. On a personal note, I am also doing that personally by exercising, as recorded yesterday, I exercised a number of stock options because I want to increase my ownership in this great company. In closing, this was another impressive year for HCI, and I have said before that the best is yet to come, and I'm saying it again, the best is yet to come for HCI. With that, we will open for questions.

Speaker #5: And on a personal note, I am also doing that personally by exercising as recorded yesterday I exercised a number of stock options because I want to increase my ownership in this great company.

Speaker #5: In closing, this was another impressive year for HCI. And I have said before that the best is yet to come. And I'm saying it again: the best is yet to come for HCI. With that, we will open for questions.

Speaker #6: Thank you. The floor is now open for questions. If you wish to join the queue to ask a question at this time, please press star 1 on your telephone keypad.

Operator: Thank you. The floor is now open for questions. If you wish to join the queue to ask a question at this time, please press star one on your telephone keypad. We do ask if listening on speakerphone today, that you pick up your handset while asking your question to provide optimal sound quality. Once again, that'll be star one on your keypad to join the queue to ask a question. Our first question will come from Mark Hughes from Truist Securities. Mark, your line is live. Please proceed.

Speaker #6: We do ask if listening on speakerphone today that you pick up your handset while asking your question to provide optimal sound quality. Once again, that'll be star 1 on your keypad to join the queue to ask a question.

Speaker #6: Our first question will come from Mark Hughes from Truist Securities. Mark, your line is live. Please proceed.

Speaker #7: Yeah, thank you. Good afternoon. How do you see pricing shaking out over the next year? Obviously, these are some pretty strong results. What is that going to mean for your rate filings?

Mark Harmsworth: Yeah, thank you. Good afternoon. How do you see pricing shaking out over the next year? Obviously, these are some pretty strong results. What is that gonna mean for your rate filings?

Mark Hughes: Yeah, thank you. Good afternoon. How do you see pricing shaking out over the next year? Obviously, these are some pretty strong results. What is that gonna mean for your rate filings?

Speaker #5: Yeah, Mark, it's Parrish. Yes, look, it's a very competitive environment. The results speak for themselves. I think we've already indicated in previous quarters that rate increases are a thing of the past, right?

Paresh Patel: ... Yeah, I, Mark, it's Parrish. Yes, look, it's a very competitive environment. The results speak for themselves. I think we'd already indicated in previous quarters that, you know, rate increases are a thing of the past, right? Now, it's just about maintaining rates and/or some easing of rates. You know, you know, what we would tell you is that all of that has been utterly predictable for almost 1 year at this point. All that will play itself out, as already anticipated by us. What we're looking at is how to go up in much bigger increments than this, right? All of that stuff is actually noise, and I say that in the context of, I think if you look back over the last 3 years, it's been years since we actually changed rates upwards, right?

Speaker #5: Now it's just about maintaining rates and/or some easing of rates. But in a what we would tell you is that all of that has been utterly predictable for almost a year at this point.

Speaker #5: So, all that will play itself out as already anticipated by us. What we are looking at is how to go up in much bigger increments than this, right?

Speaker #5: So all of that stuff is actually noise, and I say that in the context of, I think if you look back over the last three years, it's been years since we actually changed rates upwards.

Speaker #5: Right? We've been doing everything we've been doing at a very steady rate, and we hope to do that in 2026 and beyond. Putting it simply, I think we sell a great product at a fair price.

Paresh Patel: We've been doing everything we've been doing at a very steady rate. We hope to do that in 2026 and beyond. Putting it simply, I think we sell a great product at a fair price.

Speaker #7: Very good. And when you say some easing, how do you think that shakes out across the book? I don't know if you could throw any numbers or ranges at that.

Mark Hughes: Very good. When you say some easing, how do you think that shakes out across the book? I don't know if you could throw any numbers or ranges at that.

Speaker #5: I think we had previously disclosed that Homeowners Choice, starting in January, had already reduced rates by 3.5%, right? So go ahead, Mark.

Paresh Patel: I think we have previously disclosed that Homeowners Choice, starting January, had already, like, reduced rates by 3.5%, right? Go ahead, Mark.

Speaker #6: But Mark, that's only on the Homeowners Choice book, and I mean, I don't think that's—

Mark Harmsworth: Mark, that's only on the Homeowner's Choice book, and, I mean, I don't think that's.

Speaker #5: Florida.

Paresh Patel: In Florida.

Speaker #6: In Florida, and that's not I don't think that's really going to have a big impact on the average revenue per policy or any metrics like that.

Mark Harmsworth: In Florida, I don't think that's really going to have a big impact on the average revenue per policy or any, you know, metrics like that.

Speaker #6: On a consolidated.

Mark Hughes: Okay.

Mark Harmsworth: On a consolidated.

Speaker #7: And then any risk that you have to refund any of this to the policyholders—any excess profits, anything like that?

Mark Hughes: Any risk that you have to refund any of this to policyholders, any excess profits, anything like that?

Paresh Patel: No, because I think... Look, this is an interesting world we find ourselves in. Three years ago, the concern was, will anybody even survive in Florida? We were busily saying, Don't worry, we got this. Three years later, everybody seems to think that the sun will shine forevermore, and there will never be any more hurricanes, right? Both extremes, I think, are a little bit overstated. All these conversations about growth, rates, all these things, can change on a dime, as soon, you know, with one hurricane. This has happened before, and it will probably happen again. We know this. This is why we have always been measured in our approach, and we'll continue to do so that way.

Speaker #5: No, because I think—look, and this is an interesting world we find ourselves in. Three years ago, the concern was, will anybody even survive in Florida?

Speaker #5: And we were busily saying, "Don't worry, we got this." Three years later, everything seems to think that the sun will shine forever more and there will never be any more hurricanes.

Speaker #5: Right? Both extremes, I think, are a little bit overstated. And all this conversation is about growth rates, all these things. Can change on a dime.

Speaker #5: With one hurricane, this has happened before, and it probably will happen again. We know this. This is why we have always been measured in our approach.

Speaker #5: And we'll continue to do so that way.

Speaker #7: Mark, when we think about the net premiums earned, the $226 million this quarter, is that a good starting point when we think about 2026, or is there anything unusual or one-time in that number?

Mark Hughes: Mark, when we think about the net premiums earned, the $226 million this quarter, is that a good starting point when we think about 2026, or is there anything unusual or one time in that number?

Speaker #6: Yeah, I mean, a couple of ways to think about that, Mark. First of all, Karen mentioned the assumptions that we did in Q4. Those were done in the middle of the quarter, I think October 21st.

Mark Harmsworth: I mean, a couple of ways to think about that, Mark. First of all, Karen mentioned the assumptions that we did in Q4. Those were done in the middle of the quarter, I think 21 October. You don't have a full quarter's worth of premium in Q4. I think of the $45 million, roughly, per quarter, I think about 35 made its way into Q4. That's one way to think of it. Gross earned premium in Q1 should be higher than Q4 because you've got the full 90 days on those assumptions. The other way to think about it is, you know, really, your starting point is gross premiums in force, which, you know, they're up about 11, 12% over the end of last year.

Speaker #6: So, you don't have a full quarter's worth of premium in Q4. I think of the $45 million roughly per quarter, I think about $35 million made its way into Q4.

Speaker #6: So that's one way to think of it. So gross premiums earned in Q1 should be higher than Q4 because you've got the full 90 days on that on those assumptions.

Speaker #6: The other way to think about it is, really, you're starting point is gross premiums in forest, which they're up about 11, 12 percent over the end of last year.

Speaker #6: So if you're going back and comparing to the year before, Q1 is going to be higher than Q1 last year and so on. So those are sort of the two ways to think about that, if that helps.

Mark Harmsworth: you know, if you're going back and comparing to the year before, Q1 is going to be higher than Q1 last year, and so on. Those are sort of the two ways to think about that, if that helps.

Speaker #7: It does. How about any observations about weather in the quarter? I think talking high teens, gross loss ratio, is that also if the top line is stable, from a pricing perspective, yeah, the wind could blow, but is there something about that loss ratio that might go higher or lower in the subsequent quarters?

Mark Hughes: It does. How about any observations about weather in the quarter? I think, you know, talking high teens gross loss ratio, is that also, if the top line is stable, or, you know, from a pricing perspective, yeah, the wind could blow, but is there something about that loss ratio that might go higher or lower in the subsequent quarters?

Speaker #6: I don't think there's—I mean, it was a loss ratio. The normalized loss ratio in Q4, I think I said, was 17.5%. It was a fairly quiet quarter in terms of weather.

Mark Harmsworth: I don't think there's. I mean, it was a loss ratio, the normalized loss ratio in Q4, I think I said, was 17.5%. It was a fairly quiet quarter in terms of weather. You know, I wouldn't think of this as a weather story. You know, I think I mentioned in my comments that the loss ratio has continued to come down over the last three years. Some quarters you have weather, some quarters you don't have weather. If you look at the 10 accident quarters since the legislative reforms sort of, you know, fully kicked in, you look at those in total, our average loss ratio during that period, ex-cat, is about 20%.

Speaker #6: But I wouldn't think of this as a weather story. I think I mentioned in my comments that the loss ratio was continued to come down over the last three years.

Speaker #6: Some quarters you have weather, some quarters you don't have weather. If you look at the 10 accident quarters, since the legislative reform sort of fully kicked in, and you look at those in total, our average loss ratio during that period, XCAT, is about 20%.

Mark Harmsworth: You know, we think of ourselves as sort of range-bound around between 20% and 25%, but we've been at the lower end of that for a while. Actually, 5 of the last 10 accident quarters have been lower than 20%. If you look at, you know, why is the loss ratio lower in Q4 this year than Q4 last year? It's not really weather. Whether you look at ex-weather or with weather, you're going to come up with the same thing. You know, you always have quarters where you have a little bit more weather, less weather, but there's not. Q4 was not an abnormal sort of quarter in that respect. A little bit less weather, but this is not a weather story.

Speaker #6: We think of ourselves as sort of range-bound between 20 and 25 percent, but we've been at the lower end of that for a while.

Speaker #6: And actually, five of the last 10 accident quarters have been lower than 20%. And if you look at why is the loss ratio lower in Q4 this year than Q4 last year, it's not really weather.

Speaker #6: Whether you look at X weather or with weather, you're going to come up with the same thing. But you always have quarters where you have a little bit more weather, a little bit less weather.

Speaker #6: But Q4 was not an abnormal sort of quarter in that respect. A little bit less weather, but this is not a weather story.

Speaker #7: Okay. If I could take one more in. Paresh, you mentioned the potential to acquire a book, have a little more of a step function with your growth, perhaps.

Mark Hughes: Okay. If I could sneak one more in. Parish, you mentioned the potential to acquire books, you know, have a little more of a step function with your growth, perhaps might have to wait for pricing to come in line. I mean, is it just prohibitive to pay at this point, given the profitability in the state, or are there deals potentially to be done even now?

Speaker #7: Might have to wait for pricing to come in line. I mean, with the is it just prohibitive to pay at this point, given the profitability and the state?

Speaker #7: Or are there deals potentially to be done even now?

Speaker #6: Okay. Hey, Mark, before I get to that, I was just going to add something to the things that Mark just said about the loss ratio and everything else.

Paresh Patel: Okay, hey Mark, before I get to that, I was just going to add something to the things that Mark just said about the loss ratio and everything else. I think what Mark is now alluding to is that the comment about that I made earlier about our numbers that we're now posting up seem very sustainable, right? For an extended period of time. Things have been dialed in so well in the book that we have, that it sort of starts becoming very predictable, very consistent, et cetera, because we've kept a very stable portfolio. That's, it's not about just the numbers we put up. It's giving us confidence about the coming quarters, right? Which is also very important because, you know, we've lived in lots of times where things every quarter was uncertain, so we have that going for us.

Speaker #6: I think what Mark is now alluding to is that the comment about that I made earlier about our numbers that we're now posting up seem very sustainable.

Speaker #6: Right? For an extended period of time, things have been dialed in so well in the book that we have. But it sort of starts becoming very predictable, very consistent, etc.

Speaker #6: Because we've kept a very stable portfolio, so it's not just about the numbers we put up. It's giving us confidence about the coming quarters.

Speaker #6: Right? Which is also very important, because we've lived in lots of times where things every quarter were uncertain. So we have that going for us.

Paresh Patel: In terms of growth and acquisitions or whatever, I think there are opportunities out there. Obviously, there's a negotiated transaction between the buyer and the seller. Fundamentally, I think the biggest thing that's there in a bid ask spread right now is that the sellers think that 2025 was an average year, and the buyers probably want to average 2025 over the last 4 years and get to a different number. That'll get sorted out in the next few months, as you know, is 2025 repeatable? That'll settle the prices would be in terms of any purchases, et cetera, that might occur. Does that help?

Speaker #6: In terms of growth and acquisitions and whatever, I think there are opportunities out there. Obviously, there's a negotiated transaction between the buyer and the seller.

Speaker #6: And fundamentally, I think the biggest thing that's there in a bid-ask spread right now is that the seller is thinking that 2025 was an average year.

Speaker #6: And the buyer is probably wanting to average 2025 over the last four years. And get to a different number. So that'll get sorted out in the next few months as is 2025 repeatable?

Speaker #6: And that'll settle the prices would be in terms of any purchases, etc., that might occur. Does that help?

Speaker #7: It does. Thank you.

Mark Hughes: It does. Thank you.

Paresh Patel: Mm-hmm.

Speaker #1: Thank you. And as a reminder, if you wish to join Q to ask a question at this time, you may press star one on your telephone keypad.

Operator: Thank you. As a reminder, if you wish to join queue to ask a question at this time, you may press star one on your telephone keypad. Once again, that'll be star one on your telephone keypad at this time if you wish to join queue to ask a question. Your next question today is coming from Matt Carletti from Citizens. Matt, your line is live. Please proceed.

Speaker #1: Once again, that'll be star one on your telephone keypad at this time if you wish to join Q to ask a question. And your next question today is coming from Matt Carletti from Citizens.

Speaker #1: Matt, your line is live. Please proceed.

Speaker #5: Okay. Thanks. Good afternoon. Parish, I actually want to follow up. Hey, how's it going? I want to follow up on actually both of Mark's questions.

Matthew Carletti: Hey, thanks. Good afternoon. Parrish, I actually want to follow up. Hey, how's it going? I want to follow up on actually both of Mark's questions. If I could start with the kind of the pricing question and kind of understanding, you know, the answer you gave and some of the comments in the opening about, you know, reinsurance pricing and kind of what we're hearing in the market in terms of, you know, potential magnitude of savings. Would it be safe to kind of view it as margins are unlikely to have downward pressure on them when you put those together and that it's not out of the question that they could actually improve?

Speaker #5: If I could start with the kind of the pricing question. And kind of understanding the answer you gave and some of the comments in the opening about reinsurance pricing and kind of what we're hearing in the market in terms of potential magnitude of savings.

Speaker #5: Would it be safe to kind of view it as margins are unlikely to have downward pressure on them when you put those together, and that it's not out of the question that they could actually improve?

Paresh Patel: Yes, I think I would, we would conclude that, yeah. Clearly, the reinsurance rates are softening as well. As you go through this, how much margin pressure there will be is, you know, I don't think is as great as people fear.

Speaker #1: Yes. I think I would we would conclude that, yeah. Clearly, the reinsurance rates are softening as well. And as you go through this, how much margin pressure there will be is I don't think is as great as people fear.

Speaker #5: Yeah, that makes sense. And then if I can just follow up with an M&A question—when we think about potential M&A that you might look at, should we be thinking kind of Florida homeowners?

Matthew Carletti: Yeah, that makes sense. If I can just follow up with the, with the M&A question. When we think about, you know, potential M&A that you might, you know, look at, should we be thinking kind of Florida homeowners, or should we be thinking more broadly than that it could be maybe A, outside of Florida or B, something more than homeowners?

Speaker #5: Or should we be thinking more broadly than that, that it could be maybe A, outside of Florida, or B, something more than homeowners?

Speaker #1: Yeah. Actually, Matt, I'm going to throw you a curveball on that question. Right? In Mark's prepared comments, he talked about when you factor in our exit holdings and real estate holdings, stuff that sort of gets occasionally overlooked.

Paresh Patel: Yeah, actually, Matt, I'm going to throw you a curveball on that question, right?

Matthew Carletti: Okay.

Paresh Patel: In Mark's prepared comments, he talked about, you know, when you factor in our Exzeo holdings and real estate holdings, stuff that sort of gets occasionally overlooked. Book value is $140. The insurance operations is at $80, right? We've created $60 of book value by doing non-insurance things, so to speak. Yeah?

Speaker #1: Book value is 140. The insurance operations is at 80. Right? We've created $60 of book value. By doing non-insurance things, so to speak. Yeah?

Speaker #5: Yeah. Yeah. Very high. Yeah.

Matthew Carletti: Yeah. Yeah, very fair. Yeah.

Speaker #1: Yeah. So when you're looking at M&A, and just to provide clarity to everybody, as to how we're thinking about this. And I really need to tell everybody, forward-looking statements, this is my aspirations.

Paresh Patel: Yeah. When you're looking at M&A, just to provide clarity to everybody as to how we're thinking about it. I really need to tell everybody, forward-looking statements. This is my aspirations. What we've done over the years is we always look at wherever we are and say, how do we get three times bigger or three times the size, right? Ultimately, what we're talking about is how do we triple the share price from here? Clearly, earnings call, we're trying to do right by our shareholders or people who trust us with their investments. We are sitting here looking at it and saying, how do we triple our share price from here? That is.

Speaker #1: What we've done over the years is we always look at wherever we are and say, how do we get three times bigger or three times the size?

Speaker #1: Right? And ultimately, what we're talking about is, how do we triple the share price from here? Because, clearly, on this earnings call, we're trying to do right by our shareholders—people who trust us with their investments.

Speaker #1: So we are sitting here looking at it saying, how do we triple our share price from here? Because that is management is getting paid to do.

Matthew Carletti: Mm-hmm.

Paresh Patel: -management is getting paid to do. That doesn't translate into we raised rates 3%, or we wrote one new policy or whatever. You got to be now thinking about bigger moves up, and that's what we're doing, and that's where we see the opportunity, because we have a solid base from which to start of. Mark said $1 billion in shareholder equity, no debt, right? Karen's talking about how well the operations are running. You know, trying to improve that incrementally almost seems like a, you know, kind of like hitting a single when you should be thinking of home runs. That's what we're trying to do. I can, you know, in terms of what we're trying to do, in terms of M&A or anything else, any kind of growth.

Speaker #1: And that doesn't translate into we raise rates 3% or we wrote one new policy or whatever. You've got to be now thinking about bigger moves up.

Speaker #1: And that's what we're doing. And that's what we see the opportunity because we have a solid base from which to start of Mark said a billion dollars in shareholder equity, no debt.

Speaker #1: Right? Karin’s talking about how well the operations are running. So, trying to improve that incrementally almost seems kind of like hitting a single when you should be thinking of home runs.

Speaker #1: And that's what we're trying to do. If I can in terms of what we're trying to do in terms of M&A or anything else in any kind of growth.

Speaker #5: Got it. That's very helpful. I appreciate the color. Thank you.

Michael Phillips: Got it. That's very helpful. I appreciate the color. Thank you.

Paresh Patel: Mm-hmm.

Speaker #1: Thank you. Your next question is coming from Michael Phillips from Oppenheimer. Michael, your line is live. Please proceed.

Operator: Thank you. Your next question is coming from Michael Phillips from Oppenheimer. Michael, your line is live. Please proceed.

Speaker #6: Thank you. Good evening. First question would be I apologize if I missed this. I don't think I did. But can you give the gross written premium numbers this quarter and last year for Q without Citizens?

Michael Phillips: Thank you. Good evening. First question would be, apologies if I missed this, I don't think I did, but can you give the gross written premium numbers this quarter and last year, Q4, without Citizens?

Speaker #3: Without Citizens, yeah, as Mark, just give me a second. You're looking for Citizens?

Mark Harmsworth: Without Citizens? Yeah, it's Mark, just give me a second. You're looking for gross premiums earned without Citizens?

Speaker #6: I would prefer written if you have that not earned.

Michael Phillips: I would prefer written if you have that, not earned.

Speaker #3: I don't think I've got it in front of me.

Mark Harmsworth: I don't, I don't think I've got it in front of me.

Speaker #6: Okay. We can follow up.

Michael Phillips: Okay, we can follow up.

Mark Harmsworth: We've got actually, hang on a second. We've got gross written premiums in Q4 were $333 million. Yeah, I don't have the Citizens number here. I apologize.

Speaker #3: Actually, hang on a second. We've got gross written premiums in Q4 were $333 million. And from yeah, I don't have the Citizens number here.

Speaker #3: I apologize.

Speaker #1: We'll get back to you on it. Yeah?

Paresh Patel: We'll get back to you on it, yeah?

Speaker #6: Yeah. No. No worries. Thanks. I'll follow up. Thanks. And then Parish, do you think I just want to make sure I heard you correctly.

Michael Phillips: Yeah. No, no worries. Thanks. I'll follow up. Thanks. Paresh, you think, I just want to make sure I heard you correctly. You, an earlier question, you were talking about buyers and sellers and the kind of disconnect, and I think you said sellers think 2025 was an average year. If you said that's confusing to me, given that there was no cats. Is that what you think you're hearing from sellers, or did I hear that wrong?

Speaker #6: And an earlier question, you were talking about buyers and sellers and the kind of disconnect. And I think you said sellers think 2025 was an average year.

Speaker #6: If they said that, that's confusing to me. Given that there was no caps. Is that what you think you're hearing from sellers? Or did I hear that wrong?

Speaker #1: No, look, I think you've listened to enough earnings calls over the last—just this week—from enough insurance companies that everybody had a very good 2025.

Paresh Patel: No. Look, I think you've listened to enough earnings calls over the last, just this week, from enough insurance companies, that everybody had a very good 2025. For whatever reason, everybody's had a great 2025. I say whatever reason, we know the reasons, but you get the idea. The question is: Is 2025 repeatable for the next 5 years, or is it a peak earnings year, and then things will go down a little bit? Unless you have a plan that how you grow from here to a bigger number, you get to, you know, you get into some of these conversations. Having said all of that, I'm not, you know, it's just life. This is how things work. This is how it worked, in 2014 as well.

Speaker #1: For whatever reason, everybody's had a great 2025. And I'd say whatever reason, we know the reasons. But you get the idea. Question is, is 2025 repeatable for the next five years?

Speaker #1: Or is it a peak earnings year and then things will go down a little bit? Now, unless you have a plan that how you grow from here to a bigger number, you get to you get into some of these conversations.

Speaker #1: Now, having said all of that, I'm not—it's just life. This is how things work. This is how it worked in 2014 as well.

Speaker #1: Everybody thought 2014, which in that decade turned out to be a peak year, was a repeatable year every year thereafter. Right? And the idea about that is, and you just hit on the key item.

Paresh Patel: Everybody thought 2014, which in that decade turned out to be a peak year, was a repeatable year every year thereafter, right? The idea about that is, you just hit on the key item, right, is 2025 is repeatable, assuming that there will be no more hurricanes. We find that hard to model into our numbers, right? Consequently, you know, that's the disconnect between buyers and sellers.

Speaker #1: Right? Is 2025 is repeatable, assuming that there will be no more hurricanes. We find that hard to model in into our numbers. Right? So consequently, that's the disconnect between buyers and sellers.

Speaker #6: Oh, okay. Yeah. Thank you. And maybe just a quick numbers question for Mark on the expense ratio numbers. And I'm looking at net expense ratios.

Michael Phillips: Well, okay. Yeah, thank you. Maybe just a quick numbers question for Mark on the expense ratio numbers. You're, and I'm looking at net expense ratios. We're down pretty hard in the quarter. I guess I want to get some, excuse me, get some clarification on that. I know there's some, there's some choppiness by quarter, certainly in the G&A expense. Any commentary on how to think about just the overall net expense ratio from here?

Speaker #6: We're down pretty hard in the quarter. I guess I wanted to get some excuse me, get some clarification on that. And I know there's some choppiness by quarter certainly in the G&A expense.

Speaker #6: But any commentary on how to think about just the overall net expense ratio from here?

Speaker #3: Yeah. You're comparing Q3 to Q4. Right?

Mark Harmsworth: Yeah. You're comparing Q3 to Q4, right?

Speaker #6: Well, not just Q3, but one Q, two Q, three Q.

Michael Phillips: Well, not just Q3, but, you know.

Mark Harmsworth: Yeah.

Michael Phillips: One Q, two Q, three Q.

Speaker #3: Yeah. I mean, the expense ratio was lower in Q4 than it was in some of the previous quarters. And that's just sort of related to the way to the accounting related to bonuses in Q4.

Mark Harmsworth: Yeah, I mean, the expense ratio was lower in Q4 than it was in some of the previous quarters, and that's just sort of related to the way to the accounting related to bonuses in Q4. We paid a considerable portion of the bonuses in restricted shares, which gets expensed over a three- or four-year period rather than in the current year. The expense ratio was lower in Q4. If you look at what the expense ratio was, whether you're doing it gross or net, in Q2 and Q3, that's probably a better estimate of what you would see going forward.

Speaker #3: So we paid a considerable portion of the bonuses in restricted shares, which gets expensed over a three or four-year period rather than in the current year.

Speaker #3: So the expense ratio was lower in Q4. And if you look at what the expense ratio was, whether you're doing it gross or net, in the second and third quarter, that's probably a better estimate of what you would see in going forward.

Speaker #6: Okay. Yeah, I was looking at net, Mark. But thank you, that helps. Okay, cool. Thanks, that's all I had. Appreciate it. Congrats.

Michael Phillips: Okay. Yeah, I was looking at net, Mark, but thank you. That helps. Okay, cool. Thanks. That's all I had. Appreciate it. Congrats.

Speaker #3: Thank you.

Mark Harmsworth: Thank you.

Speaker #1: Thank you. And as a reminder, if anyone wishes to join the queue to ask a question at this time, please press star 1 on your telephone keypad.

Operator: Thank you. As a reminder, if anyone wishes to join the queue to ask a question at this time, please press star one on your telephone keypad. Once again, that'll be star one on your keypad at this time, if you wish to join queue to ask a question. Our next question is a follow-up from Mark Hughes from Truist Securities. Mark, your line is live. Please proceed.

Speaker #1: Once again, that'll be star 1 on your keypad at this time if you wish to join the queue to ask a question. And our next question is a follow-up from Mark Hughes from Truist Securities.

Speaker #1: Mark, your line is live. Please proceed.

Speaker #5: Yeah. Thank you. What do you think the timing will be on the $80 million buyback?

Michael Phillips: Yeah, thank you. What do you think the timing will be on the $80 million buyback?

Mark Hughes: Yeah, thank you. What do you think the timing will be on the $80 million buyback?

Speaker #1: I think it's probably obviously subject to various little regulatory requirements or whatever. But it could be as early as next week or the week after.

Paresh Patel: I think it's probably, you know, obviously subject to various little regulatory requirements or whatever, but it could be as early as next week or the week after.

Speaker #5: Yeah. Okay. For approval or would you assume you could execute on that pretty quickly?

Michael Phillips: Yeah, okay. For approval, or, would you assume you could execute on that pretty quickly?

Mark Hughes: Yeah, okay. For approval, or, would you assume you could execute on that pretty quickly?

Speaker #1: Yeah, Mark. Okay, so let's go to the details of some of this stuff. Because of all of these things, and us also trying to be shareholder-friendly, we wanted to make sure everybody knew about it before, as opposed to just a press release dropping in the middle of the week or whatever.

Paresh Patel: Yeah. Mark, okay, so let's go to the details of some of this stuff. Because of all of these things and us also trying to be shareholder-friendly, we wanted to make sure everybody knew about it before, you know, as opposed to just a press release dropping in the middle of the week or whatever. We want to make sure we discuss it in the earnings call. In reality, we have to instigate it during an open window, and the open window will probably start for us probably mid-next week. It's roughly in that kind of timeframe that we actually have to instigate it. That's what, you know, what holds all these things up, because we have to make sure we do it at the right time.

Speaker #1: So we want to make sure we discuss it in the earnings call. And in reality, we have to instigate it during an open window which will probably and the open window will probably start for us probably mid-next week.

Speaker #1: So it's roughly in that kind of time frame. That we actually have to instigate it. So that's what holds all these things up because we have to make sure we do it at the right time with the making sure all of our shareholders are amply informed.

Paresh Patel: You know, making sure all of our shareholders are amply informed, yeah, before it starts. That's why it's next week.

Speaker #1: Yeah? Before it starts. So that's why it's next week.

Speaker #5: Okay. Thank you very much.

Michael Phillips: Okay, thank you very much.

Mark Hughes: Okay, thank you very much.

Paresh Patel: Mm-hmm.

Speaker #1: Thank you. At this time, this concludes our question and answer session. I would now like to turn the call back over to Parish Patel who has a few closing remarks.

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

Speaker #7: 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.

Paresh Patel: 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. Thank you. We look forward to keeping you informed in the future.

Speaker #7: Thank you. And we look forward to keeping you informed in the future.

Operator: At this time, this concludes our call. You may now disconnect. Thank you once again for your participation.

Q4 2025 HCI Group Inc Earnings Call

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