HCI Group (HCI) Q3 2026 Earnings Call Transcript

DATE

Wednesday, Nov. 4, 2026

CALL PARTICIPANTS

• Investor Relations - Nathaniel Otis
• Chief Operating Officer - Karin Sue Coleman
• Chief Financial Officer - James Mark Harmsworth
• Chairman and Chief Executive Officer - Pareshbhai Suryakant Patel

TAKEAWAYS

• Pretax Income -- $116.3 million, representing an increase from $90.6 million in the same quarter of the prior year.
• Diluted EPS -- $6.45, growing from $4.90 in the prior year quarter due to increased operating leverage.
• Gross Written Premiums -- $353.1 million, increasing 12% year over year driven by momentum in the CORE business.
• CORE Gross Written Premiums -- $24.9 million, rising from $6.4 million in the same period last year.
• Net Income -- $86.2 million, up 27% year over year even as gross premiums earned rose only 5%.
• Combined Ratio -- high 50s percentage range, compared with a management target range of 60% to 65%.
• CORE Monthly Premium Run Rate -- $8 million per month, increasing from approximately $6 million per month in the second quarter.
• Net Investment Income -- $21.7 million, up from $17.5 million primarily driven by a larger volume of invested assets.
• Cash and Investments -- $2.1 billion, supporting a strengthened balance sheet with stockholder equity exceeding $1 billion.
• Debt-to-Capital Ratio -- less than 6%, reflecting a minimal debt position.
• Book Value Per Share -- $90.15, rising from $63.41 as of Sept. 30, 2025.
• Adjusted Book Value Per Share -- $160, representing a pro forma figure that includes unrealized gains on the Exzeo ownership and the real estate portfolio.
• Hurricane Isaias Net Loss -- $15 million, expected to be realized in the fourth quarter based on the company's reinsurance structure.
• Share Repurchases -- 504,330 shares, representing a total investment of $80 million through the completion of the program on July 17, 2026.
• Holding Company Liquidity -- $150 million, maintained even after the completion of the $80 million share buyback.
• Insurance Carrier Surplus -- $750 million, distributed across the company's various insurance entities.
• Quarterly Positive Cash Flow -- $75 million, which generates approximately $33 million per year in incremental investment income at a 4% yield.
• Investment Yield -- 4.25% on total invested balances, with potential for further increases if interest rates rise.
• Policy Attrition Rate -- 8% to 8.5%, remaining consistent over the preceding 12 months.
• Loss and Loss Adjustment Expenses -- $65.4 million, benefiting from a small amount of favorable prior year development and a gross loss ratio of 20.7%.
• Premiums Ceded -- $96.9 million, down from $106.1 million due to lower costs from the catastrophe reinsurance program that began June 1, 2026.

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RISKS

• Harmsworth warned that the company's fourth quarter results will include a fixed net loss of $15 million related to Hurricane Isaias.
• Coleman stated that management anticipates rates in the CORE book of business should lower a bit because of legislative reforms and other market factors.
• Coleman noted that HCI has received over 1,300 claims related to Hurricane Isaias since it made landfall on Oct. 9.

SUMMARY

HCI Group, Inc. (NYSE:HCI) reported an increase in pretax income driven by operational leverage and expansion in its investment portfolio. Management stated the company is transitioning from a period of aggressive top-line expansion to a focus on maintaining business stability and increasing earnings per share through share count reduction. The company reported a combined ratio below its historical target range and completed an $80 million share repurchase program during the year. Management indicated that its catastrophe strategy facilitated a faster recovery of book value following recent storm activity compared to historical performance.

• Patel stated, "internal operating decisions can be as important as external market conditions," reflecting the focus on driving profit through operating leverage rather than volume alone.
• Management reported that its CORE business segment, which includes a partnership with GEICO, has increased its monthly written premium run rate by 33% compared to the prior quarter.
• Patel noted that the company is testing tokenized reinsurance through a full cycle that is expected to conclude on June 1, 2027.
• Coleman stated that ongoing innovations within the Exzeo technology division ensure the company "will be at the forefront of our industry as AI transforms it."
• Management indicated that recent legislative reforms in Florida have led to a stabilization of loss trends, with no significant changes in frequency or severity reported over the last year.
• Patel reported on the call that the company has narrowed the gap to achieving organic policy growth and expects to potentially reach that milestone in the near future.
• Harmsworth noted that the company's return on equity has averaged over 30% over the last three years, exceeding the industry average of less than 15%.

INDUSTRY GLOSSARY

• CORE: Condo Owners Reciprocal Exchange, an HCI insurance subsidiary focused on residential business.
• GPE: Gross Premiums Earned, the total amount of premium that a company has earned during a specified period.
• Combined Ratio: A measure of underwriting profitability calculated by dividing the sum of incurred losses and expenses by earned premium.
• Exzeo: HCI Group's internal technology division that develops software and automation tools for the insurance industry.
• TypTap: An HCI Group subsidiary that utilizes proprietary technology and data sets to underwrite homeowners insurance.
• Attrition Rate: The percentage of customers or policies that the company loses over a specific period.
• Net Investment Income: The income generated by an investment portfolio after deducting related management expenses.

Full Conference Call Transcript

Operator: Afternoon, and welcome to the HCI Group's Third quarter 2026 earnings call. My name is John, and I will be your conference operator today. At this time, all participants will be in 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 11/18/2026 starting later today. Call is also being broadcast live via webcast and available via webcast replay until 11/04/2027. On the investor information section of HCI Group website at www.hcigroup.com. I would now like to turn the call over to Nathaniel Otis. HCI's Investor Relations. Nathaniel, please proceed.

Nathaniel Otis: Thank you, and good afternoon. Welcome to HCI Group's Third quarter 2026 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 would 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 2000. Words such as anticipate, estimate, expect, intend, planned, 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 risks or uncertainties develop into actual events, these developments could have materially adverse effects on the company's business, financial condition, and results of operations. HCI Group disclaims all obligations to update any forward looking statements. Now with that, I will turn the call over to Karin-Sue Coleman, Chief Operating Officer.

Karin Sue Coleman: Thanks, Nathaniel. Good afternoon, and thank you for joining us for our third quarter earnings call. Before Mark provides our financial results, we would like to express our thoughts and support for all of those impacted by Hurricane Isaias. Including our policyholders, employees, and communities affected by the storm. Isaias made landfall in Florida on October 9 as a Category 2 storm, fortunately, down from a Category 3 before reaching shore. Today, HCI has received over 1.3 thousand claims related to Isaias and have already distributed over 3 thousand checks. And we continue to work closely with our policyholders as they repair their homes.

With that, let me turn it over to Mark Harmsworth, our Chief Financial officer, to go through this quarter's financial results.

James Mark Harmsworth: Thanks, Karin. This was another very successful quarter for the company. With a low combined ratio, growing earnings, a very strong balance sheet, and strong returns on equity. Pre tax income in the quarter was more than $116 million up from $91 million in the same quarter last year. Diluted earnings per share were $6.45 up from $4.90 in the third quarter of last year and up from $5.60 in the second quarter of this year. I have mentioned operational leverage and the earnings power of the company many times on these calls. And this is again very clear this quarter. Look at this quarter compared to the same quarter last year.

Gross premiums earned are up 5% but net income is up 27%. Why? Because investment income is up over 20%, Reinsurance expenses are down. And expenses are growing slower than revenue. Now look at this quarter compared to the previous quarter of this year. Gross premiums earned are down slightly but net income is up for the same reasons. When premiums are growing, earnings are growing faster, and when premiums are down, does not mean that earnings are down. That is operational leverage and earnings power. Let's turn to the balance sheet for a minute, which continues to strengthen. We have over $2.1 billion in cash and investments, Stockholder equity is well over $1 billion.

Debt to cap ratio is less than 6%. And book value per share is now over $90 and growing. As we discussed in our last call, while the growth in book value per share has been impressive, remember, this does not include unrealized gains on our ownership of Exio, or on our real estate portfolio. When these are included, pro forma book value per share is over $160. If you look at the larger population of public P&C companies, over the last 3 years, after tax returns on equity averaged less than 15% and yet they trade at 2x book value per share.

During that same 3-year period, we, on the other hand, generated an after tax rate of return well over 30% and this was at a time when we experienced 2 major hurricanes. Despite that superior rate of return on equity, we are trading at a much lower multiple of adjusted book value per share. that is the reason we bought back 4% of the company so far this year. In terms of holding company liquidity, we have over $150 million of liquidity at the HCI level, even after the $80 million buyback. Our insurance carriers have also never been stronger. Have over $750 million in surplus in our various insurance companies.

Our ability to maintain a strong surplus position and still generate superior returns on equity shows the effectiveness of our capital strategy. Which balances strong returns while having the financial strength to withstand major weather events and be there for our policyholders. 1 other note, Karin mentioned hurricane Isaias in her opening remarks. As we explained in a press release recently, our net loss for this storm in the fourth quarter will be $15 million and that number will not change even if the gross loss changes. Wrapping up in the quarter, it is been another fantastic win for the company. Revenue is growing. Margins are expanding.

We are generating record cash flows, have minimal debt, continue to generate superior returns on capital, and we have bought back 4% of the company. And with that, I will hand it back to Karin.

Karin Sue Coleman: Thanks, Mark. As Mark mentioned, as market conditions have softened, we remain focused on executing our long term strategy As we have mentioned in prior calls, the strategy is to keep attrition low, to have the agility to offer new products when prudent, to be efficient with operating expenses, and to have the discipline to patiently assess the market and deploy capital on opportunities that offer meaningful upside. Related to this strategy, in the quarter, gross written premiums were up 12% year-over-year as the new resident business at core continues its momentum. This business has more than doubled since last quarter and is now averaging over $8 million a month.

Underwriting continues to be a strength of ours, And with Exeo, not only do we benefit from its technology and automation, but its ongoing innovations also ensure that we will be at the forefront of our industry as AI transforms it. On the expense front, as Mark mentioned, we focus on cost management to further enhance our operating leverage. For reinsurance, which is our biggest expense, we benefit when reinsurance rates soften. But also utilize a multitower strategy to help mitigate the potential for higher losses from any 1 storm. This strategy proved itself in the case of Hurricane Isaias.

In addition, our sizable investment portfolio is another way we take advantage of market conditions to further strengthen the bottom line. Lastly, since managing catastrophe risk is a critical part of our business, let me leave you with this. When hurricane Irma hit, it took 36 months for book value to recover after the storm. Hurricane Ian, it took us 15 months to return book value to its pre storm level. With Hurricanes Helene and Milton, it was 3 months. And now for Isaias, it will be just 2 weeks.

Our strategy not only drives strong earnings in a softening market, but also demonstrates how durable these results are even after factoring in the inevitable storm activity that comes with operating our business. With that, let me turn it over to Paresh for some final thoughts.

Pareshbhai Suryakant Patel: Thank you, Karin. What we believe sets us apart is our ability to proactively position ourselves for future market conditions. A few years ago, we understood that it was a good time to grow. So we went on a growth upswing and strengthened our top line. And we nearly doubled the size of the company. But for a little over a year now, we have known that top line growth will be more challenging going forward. As a result, 2026 has been about maintaining a stable level of business while focusing on operating leverage. For 2027, we will do the same while expanding EPS leverage through an even lower share count.

And all the while benefiting every month from our strong investment portfolio. Finally, we see an abundance of capital chasing premium in our space. We also note the rapid influence of AI, and its ability to be utilized in many innovative ways. And we have always embraced disruption in the markets and emerging technologies. You will recall, we started an insurance company when others were leaving the space. We started technology company long before Insurtech was a fad. So we are working on the next level innovation in both insurance and the technology space, and are looking forward to sharing those advances with you soon. And with that, I will turn the call over for questions.

Operator: Thank you. If you wish to ask a question during this time, simply press 1 on your telephone keypad. Our first question comes from the line of Mark Hughes from Truist. Please go ahead.

Mark Hughes: Yes. Thank you. Good afternoon. Afternoon, Mark. Any changes in policy retention? I think you are talking about 2026 and 2027. Using the core to offset normal underlying policy losses. Are you seeing any change in those retention numbers? The market seems like it is a little more competitive these days.

James Mark Harmsworth: Not really. If you. Mark, it is Mark. If you look at the retention over say the last 12 months or the attrition, let's say, is sort of 8, 8.5%, somewhere in that range. And it has it has. it is been fairly consistent throughout the year.

Mark Hughes: Okay. And then how should we think about the rate going into 2027?

Karin Sue Coleman: What is the influence of rate gonna be on that book of business Well, we do anticipate that rates should lower a bit, which is not unexpected given reforms and other factors over the past few years. So we will be working on that.

Mark Hughes: And then, Paresh, that tokenized reinsurance, is there anything to be done around the 1/1 renewals, or is that a 6/1 event for you.

Pareshbhai Suryakant Patel: Good question. it is gonna be a 6/1 event. As you know, we are testing this thing through an entire cycle. The cycle will be over on 6/1. Yeah? Next year. Yeah.

Mark Hughes: Very good. And then anything on the GEICO relationship? I think it has been kind of deliberate heretofore. Anything different you are seeing there?

Karin Sue Coleman: Well, our core business continues to grow. Last quarter, we noted that we were doing about $6 million a month. in CORE, and that has now increased to $8 million a month. So that continues to be very positive.

Mark Hughes: Very good. Thank you.

Pareshbhai Suryakant Patel: Thanks, Mark.

Operator: Our next question comes from the line of Michael Phillips from Oppenheimer. Please go ahead.

Michael Phillips: Yeah. Hi. Thanks. Good evening. Think last quarter, Paresh said something about possibly seeing organic policy growth by the end of the year. Guess I want to see if you saw any path towards that. Did anything happen this quarter for that? And is it still on track, you think, by the end of this year?

Pareshbhai Suryakant Patel: Yeah. We have narrowed the gap down tremendously, and it is gonna be a close run race as to whether we see it by the end of the year. But we are planning on hopefully having it in the near future. Yeah?

James Mark Harmsworth: And, Mike, it is Mark. Just, you know, the organic growth, just to go back to something Karin mentioned. You know, we had said on the last call, we were expecting about 6 million a month in written premium. And as Karin mentioned, that it is been bigger than we thought in the 8 million range. So that is where that organic growth that Paresh is talking about is coming from. it is on the CORE in the CORE business line. it is been working really well.

Michael Phillips: Perfect. I will click on that then, Mark. Or anybody. Does the GEICO partnership only flow through core, or is it other carriers from HCI as well?

James Mark Harmsworth: I think it flows through a number of different carriers. Okay.

Michael Phillips: And then maybe just lastly, I guess, you are on the expense side, you talked about leverage a lot. Acquisition expenses are pretty flat. Your operating expenses are not big at all and are hardly moving. But I guess, how do we think of those, both components of those, particularly as core grows and scales?

James Mark Harmsworth: Yeah, Mike, it is Mark. So you are asking about which expenses? Yeah. The operating expense. You know, it is probably $6 million, but how does that move as course scales? Yeah, I mean, if I go. back to what I had Yeah, if you if you look over the history of, say, the last you know, 6, 8 quarters, that number does not really move that much. it is pretty flat. When it does grow, it is. You know, as I as I said in my earlier remarks, it grows slower than the revenue does.

And, you know, the other thing is if you sort of wrap everything together and look at the combined ratio, you know, we have we have mentioned a combined ratio expectation, in the sort of 60% to 65% range, and we have been at the low end of that for a significant amount of time. Actually, I think we are in the high 50s this quarter. So you know, those. Even as core is growing, those expenses are really not growing much. that is kind of what is creating that leverage that we talked about. Yep. Okay, all right. Good deal. Thank you very much.

Operator: Our next question comes from the line of Matthew Carletti from Citizens Bank. Please go ahead.

Matthew Carletti: Mark, it looks like cash continues to be put to use, invested in investments. Can you talk a little bit about, new money rate versus book yield and kind of what we should expect on the NII line?

James Mark Harmsworth: Yeah. So I think Karin and Paresh both mentioned it. Investment income been growing pretty significantly And that is really being driven just by you know, by cash flow. So we are generating about $75 million a quarter in you know, positive cash flow. Which you know, at our current yield of 4% or so, is generating about $33 million per year of incremental investment income. So that is been very positive. So investment income, you know, is continuing to grow. Just because of that increase in the sort of cash and fixed term investments balances, the total?

And we have also been sort of you know, at different times, you know, increasing the amount that is invested in fixed term securities. Over the last little while. I think the overall yield is about 4.25%. On total invested balances of about and that is and that is you know, obviously, that is got the potential to go up or has been increasing. So we are we are. If you look into next year, so we are benefiting from 2 things. 1, the invested balances are going up. And 2, we have got the potential for rates to go up a bit. But it is it is been a very good story for us.

Matthew Carletti: Okay, great. And then maybe just 1 other 1, if I could. Obviously, elections last night, and if I am reading kind of Florida right, it seems like stability in the CFO's office. So maybe an end of a super majority for the GOP. Any takeaways as it relates to kinda your core markets homeowners insurance, good, bad, or otherwise from kinda the changing landscape?

Pareshbhai Suryakant Patel: We do not see anything that is going to be a big deal here, especially in Florida. We have always had good working relationships with the regulators and things seem to be pretty business as usual at this point.

Matthew Carletti: Alright. Great. Thank you.

Operator: Our next question comes from the line of Ryan Tunis from Cantor. Please go ahead.

Analyst: I guess, first, just the start of the Exio earnings release, there is a quote from Karin saying AI will reach the insurance industry, not just in expense ratios. But how coverage is bought and sold. Just curious, you know, how you would expand on how that relates to HCI Most of the discussion right now is around auto. You seem to think that could have an impact on home. So just looking for you to elaborate. Thanks.

Pareshbhai Suryakant Patel: Yes. Look. Very simply, AI is going to change things. I actually cited my remarks in here as well. And we have always been more focused even as HCI on what is. Where the world is going as opposed to where it is currently. So if AI is going to reshape things, it is gonna reshape homeowners. In some interesting ways. And we are going to luckily, having Exio, we will be at the cutting edge of this just as a normal byproduct of who we are. So stuff you have heard about what AI might do to auto I wanna do that to home as well.

Analyst: Interesting. And then I guess could the gross loss ratio continues to be pretty strong. I mean could you just given the rate environment, talk a little bit about you know, where those are running now and where what is a reasonable expectation perhaps in for 2027?

James Mark Harmsworth: So it is Mark. So loss ratio you know, it is been performing really well. We have said for some time now you know, expect the loss ratio in the 20% to 25% range. that is still the case. It can move around a little bit. We have been at the low end of that range now. Continuously for you know, quite a while now. And, you know, I do not think I have anything really new to add to that. it is been. it is pretty consistent.

If you if you look at the loss ratio for the last for the first 9 months of this year, it is exactly the same as the first 9 months of last year, which is 21%. So we sort of continue to be at that low end of the range, and you know, that is that is our expectation still going forward. And I guess are you noticing anything in the data from a loss trend standpoint, whether it is frequency or severity that been unusual this year? Because I mean, it obviously, really good results, but just I guess I am a little surprised it has not been a little more deterioration toward that. You know, midpoint 2025. No.

No. I mean, we follow the trends pretty you know, pretty carefully, obviously, and there was a significant change, you know, as the legislative changes rolled through a few years back. But since then, you know, there really has not been there has not been a lot of change in either frequency or severity. I mean, you have a little bit of inflation on the severity side, of course, with cost of materials, but that is that is all sort of baked into that loss ratio range. But in terms of frequency, and severity, they reset a few years back and they can move around a bit quarter to quarter based on weather.

But generally speaking, it is been it is been very consistent now for quite a while now. And lastly, maybe I missed it, but do you guys have a gross loss estimate peg for Isaias? Yeah. So we put a press release on that, but on a gross number No. I mean, we -- it is too early to give that number. We will be putting that in our K. But I think the most important thing there is you know, the net loss just because of how the reinsurance works for that event the net loss that you are gonna see in Q4 is $15 million.

And it does not matter -- it does not really matter what the gross. What the gross is. I mean, we will come out with a. it is a little bit early to put a good number on that. Obviously, we have a pretty good idea, but it is too early to publish a number. We will do that in the K. But I think the most important thing is that does not change the net loss number, which is what flows through to the loss expenses in Q4.

Analyst: That makes sense. Thanks, guys.

Operator: Thank you. As a reminder, if you have any questions or follow-up, please press 1. At this time, this concludes our question and answer session. Would now like to turn the call back over to Pareshbhai Suryakant Patel, who has a few closing remarks. Pareshbhai Suryakant Patel, chairman and CEO.

Pareshbhai Suryakant Patel: Thank you. On behalf of the entire management team, I would like to thank our shareholders, employees, agents, and most importantly, policyholders for their ongoing and continued support. Thank you.

Operator: At this time, this concludes our question and answer session. This concludes today's call. You may now disconnect.

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