HCI Group, Inc. Q4 FY2025 earnings call

• Financial results: Q4 pretax income $144M, full year $429M; diluted EPS Q4 $7.25, full year $22.72; growth premiums up 12% Q4, 14% full year; loss ratio improvements due to legislative reform and disciplined underwriting; combined ratio <45% Q4, normalized <60% when adjusted; strong balance sheet with shareholder equity over $1B, tripled in 2 years; cash flow strong, over $750M in cash from ops past 2 years; holding company liquidity $175M; underwriters' surplus well over half a billion; gross leverage ratio 2.5; after-tax return on equity over 35% past 3 years.
• Exio IPO: Completed Exio IPO, owns 82% of Exio's shares, Exio platform is a strong asset.
• Policy assumption: Assumed 47,000 policies from citizens in Q4, over $175M in-force premiums, full year 60,000 policies; Q4 assumption pre-funded growth for 2026, starting 2026 ahead of 2025 in in-force premiums.
• Reinsurance: Chose not to lock in multi-year reinsurance rates, working on favorable terms for June 1 renewal; layering in new business and using expense levers for flexibility.
• Growth opportunities: See opportunities for strategic acquisitions, patient as pricing rationalizes; monitor California's insurance industry reform; investing in self with new $80M share repurchase program finalized and expected to be announced soon.

Pretax income was $144 million in Q4 and $429 million for the full year. Diluted EPS were $7.25 for Q4 and $22.72 for the year. Growth premiums earned in Q4 up 12% y-o-y and 14% full year. Growth loss ratio in Q4 15.6%, normalized loss ratio 17.5% for Q4 and 20% full year. Combined ratio less than 45% in Q4, normalized combined ratio less than 60% when adjusted. Shareholder equity ended year over $1 billion, tripled in 2 years. Book value per share over $80, pro forma over $140 with unrealized gains included. Cash flow strong, over $750 million in cash from ops past 2 years. Consolidated cash end of year over $1.2 billion. Holding company liquidity $175 million. Underwriters' consolidated surplus well over half a billion. Gross leverage ratio 2.5. After-tax return on equity over 35% past 3 years. HCI completed Exio IPO, owns 82% of Exio's shares. Assumed 47,000 policies from citizens in Q4 with over $175M in-force premiums, full year 60,000 policies.

Marked Harmsworth mentioned growth premiums earned in Q4 up 12% y-o-y and 14% full year. Parish Patel stated 2025 was a phenomenal year and the best is yet to come, with opportunities to grow organically, by acquiring books, and into new markets. Also mentioned the new $80 million share repurchase program expected to be announced in the coming days. Parrish noted that the assumptions made late in 2025 set up growth for 2026.

Forward-looking statements are subject to various risks and uncertainties. Risks and uncertainties identified in company's SEC filings could materially adverse affect business, financial conditions, and results of operations. Concerns about market instability, potential impact of hurricanes on results, and the disconnect between buyers and sellers regarding acquisition pricing due to uncertainty of repeatability of 2025 results.

Q: How do you see pricing shaking out over the next year?

A: Parrish said it's a competitive environment, rate increases are a thing of the past, now about maintaining or easing rates, all predictable for almost a year, and they sell a great product at a fair price.

Q: When you say some easing, how does it shake out across the book?

A: Mark said Homeowners' Choice in Florida reduced rates by 3.5% in January, but it may not have a big impact on average revenue per policy or metrics, and no risk of refunding excess profits as it's an uncertain environment with hurricanes being a factor.

Q: Regarding net premiums earned of $226 million this quarter, is it a good starting point for 2026 or any unusualness?

A: Mark said Q4 had assumptions done mid-quarter (Oct 21st), so not a full quarter's premium, gross premiums earned in Q1 should be higher as it has full 90 days on assumptions, and gross premiums in-force are up about 11-12% over end of last year.

Q: Any observations about weather in the quarter and loss ratio?

A: Mark said Q4 was a fairly quiet weather quarter, normalized loss ratio in Q4 was 17.5%, loss ratio has continued to come down over 3 years, averaging about 20% ex-cat over 10 accident quarters since legislative reform, and Q4 loss ratio lower than Q4 last year not due to weather.

Q: Thoughts on potential to acquire books and growth?

A: Parrish said there are opportunities, but there's a bid-ask spread with sellers thinking 2025 was average and buyers wanting to average over last four years, depending on whether 2025 is repeatable; Mark added about the solid base and looking to triple share price.

Q: Follow-up on pricing and reinsurance savings potential?

A: Parrish said reinsurance rates are softening, margin pressure unlikely to be great, and margins unlikely to have downward pressure and could improve.

Q: Follow-up on M&A potential, should it be Florida homeowners or broader?

A: Parrish said they're looking to triple share price, so thinking about bigger moves, and it's not just limited to Florida homeowners.

Q: Question on gross written premiums this quarter without citizens?

A: Mark said they don't have the written number in front of them but gross written premiums in Q4 were $333 million and would follow up.

Q: Follow-up on expense ratio and commentary?

A: Mark said the expense ratio was lower in Q4 due to accounting related to bonuses paid in restricted shares expensed over 3-4 years, and the second and third quarter expense ratio is a better estimate going forward.

Q: Timing on $80 million buyback?

A: Parrish said it could be as early as next week or the week after, with the open window probably starting mid-next week to instigate it.