Good afternoon and welcome to HCI Group's second quarter 2025 earnings call. My name is Paul and I will be your conference operator. 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 September 6th 2025 starting later today. The call is also being broadcast live via webcast and available via webcast replay until August 8th 2026 on the investor information section of HCI Group's website at www.hcigroup.com. I would now like to turn the call over to Bill Brumel, VP of Investor Relations. Bill, please proceed.

Thank you and good afternoon. Welcome to HCI Group's second 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 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 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 risks or uncertainties develop into actual events, these developments could have material adverse effects on the company's business, financial conditions, and the 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 Karen Coleman, Chief Operating Officer.

Thank you, Bill, and welcome, everyone. HCI reported another great quarter. Highlights for the second quarter include reported earnings of $5.18 per share, we improved the net combined ratio to 62%, and total shareholders' equity grew to $759 million, up 65% year-to-date. In addition to these financial achievements, we had several other important developments in the quarter. We reduced our debt-to-cap ratio to less than 10%. Homeowner's Choice, TipTap Insurance Company, and Tailrow Reciprocal Exchange were each approved for depopulation from citizens in October of this year. Also, HCI successfully placed its reinsurance program for the 2025-2026 treaty year. Our conservative reinsurance strategy ensures we are well protected for the year ahead. The technology developed at Exeo continues to play an important role in HCI's success and is a real differentiator. For example, it has enabled HCI to identify favorable market shifts early. We detected improvements in Florida's underwriting environment ahead of many peers, and we executed on that opportunity. We've been able to scale rapidly without compromising underwriting discipline. HCI has grown in-force premium by more than $460 million to approximately $1.2 billion since the end of 2022. The technology has allowed HCI to select and retain the right customers, supporting a retention ratio of about 90%, and our gross loss ratio improved during that time to below 25%. Collectively, Exio's technology has delivered meaningful value to shareholders as reflected in the HCI's strong financial performance in recent quarters. Looking ahead, irrespective of market conditions, we're confident that our experienced team combined with our technology will continue to help identify and underwrite attractive policies that align with our risk and profitability standards. With this advantage, we believe HCI is well positioned to generate compelling returns on shareholder capital. Now I'll turn it over to Mark to provide more details on our financial results.

Thanks, Karen. Pre-tax income for the quarter was just over $94 million, and diluted earnings per share were $5.18 compared to $4.24 in the second quarter last year. Year-to-date, pre-tax income is $195 million, and diluted earnings per share are $10.57. This significant continuing improvement is driven by higher premiums, a lower loss ratio, and lower operating expenses as a percentage of premiums. The gross loss ratio this quarter was 21.3%, up slightly from the first quarter this year, but more than six points lower than the second quarter last year, reflecting the continuing decline in claims frequency. We also continue to generate significant operational leverage as evidenced by the lower operating expenses as a percentage of revenue. When combined with lower loss ratios, the result is a combined ratio which was just under 62% for the second quarter. As we announced back in June, we completed our reinsurance program for the year. Because the effective date of the new program is June 1st, part of the impact shows up in the second quarter, but the full impact will be reflected in the third quarter. At that time, premium seeded to reinsurance will be $106 million per quarter, just slightly higher than they were in the first and second quarters. Once the full effect of the new program is reflected, we expect the net combined ratio to be about 70%. Now let's look at the balance sheet, which continues to strengthen. In June, we redeemed the remaining balance of our 4.75% convertible notes, fully settling the $172 million obligation. As Karen mentioned, this brings the debt-to-cap ratio well under 10%, and interest expense going forward will now be a little less than $1 million per quarter, which is less than a third of what it had been. Due in part to this redemption, but also because of continued profitability, shareholder equity has grown by more than $300 million so far this year and is now well over three quarters of a billion dollars. Book value per share has grown by more than $16 so far this year to $58.55 at the end of June. In terms of holding company liquidity, it's just over $250 million at the end of the second quarter, and there is now very little debt at the holding company level. To summarize, this was another fantastic quarter for the company. The company is growing, but even more importantly, all of our financial metrics continue to improve. The loss ratio continues to come down, the combined ratio continues to come down, and the balance sheet continues to get stronger. And with that, I'll hand it over to our president of Exio, Kevin Mitchell, to give us an update on Exio.

Thanks, Mark. We remain excited about our momentum at Exio. As we have mentioned on our prior earnings call, we are moving forward with our plans to have Exeo be a separate, publicly traded entity. After careful consideration of all of our options, we believe the best path is to pursue an initial public offering of Exeo shares. Earlier this week, Exeo confidentially submitted a draft registration statement on Form S-1 with the U.S. Securities and Exchange Commission relating to a proposed initial public offering of Exeo's common stock. As a result, our CFO, Suela Boku, and I won't be making statements on Exeo's results in the near term. Additionally, with the suggestion of counsel, we are advised to provide the following disclosure. The size and price range of the proposed offering by Exeo have not yet been determined. The initial public offering is expected to take place after the completion of the SEC review process, subject to market and other conditions. There is no assurance that the initial public offering will be completed. We note that this announcement regarding Exeo is being made under SEC Rule 135 and does not constitute an offer to sell or the solicitation of an offer to buy securities. Furthermore, it does not constitute an offer, solicitation, or sale in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of that jurisdiction. Now I want to turn the call over to Parrish. Thank you, Kevin.

Kevin, as Karen and Mark highlighted in their comments, HCI reported another quarter of strong financial results. Kevin's exciting comments on Exio reminded me of a time 18 years ago. Last week marked the 17th anniversary of HCI's IPO. The company has come a long way since going public in 2008 in the middle of a great financial crisis. But over the past 18 years, our management team has always been guided by a central principle, building long-term shareholder value. And along the way, there's always been ups and downs, but what matters most is what you achieve, not where you begin. As an example, 18 years ago, you wouldn't have predicted that we would grow earnings 25 times, or increase the share price by 20 times, and increase the shareholder's equity over 30 times. And note that because our management team has a proven track record of delivering strong long-term returns for our shareholders, and we are all very committed to building on that success. please join us as we embark on the next leg of our journey our best days are in front of us and with that i will turn it over for questions thank you sir at this time we'll be conducting a question and answer session if you have any questions or comments please press star one on your phone at this time we ask that while posing your question you please pick up your handset if listening on speakerphone to provide optimum sound quality please hold while we pull for

questions. The first question today is coming from Matt Carletti from Citizens Capital Markets. Matt, your line is live.

Hey, thanks. Good afternoon. Hey, Matt. Parrish, maybe I'll start. I was hoping that you might be able to kind of update us on what you're seeing market condition-wise in Florida, you know, competitive landscape and so forth.

I want to give that question to Karen.

Sure. Thanks, Parrish. The environment in Florida now is a healthy one, as you can see from our financial results. It's natural that it will attract capital and competition, but that's not new to us. We've been around for a long time and have succeeded in all kinds of markets. The more competitive market is already here. Look at the 2023 takeout process. That was somewhat competitive, and 2024 even more so. But even with that, we got more policies than we thought we would get. The attrition of those policies has been less than what we thought, and the loss ratio has been lower than we thought. So we believe we're well positioned in a competitive market. We have multiple underwriters that can pursue different strategies. We have a strong capital position. And as I mentioned earlier, we have the people and the technology to make the right decisions.

Maybe, Karen, sticking with that, you mentioned in your prepared remarks about HCI and tail row being approved for an October DEPOP. Can you just give us kind of your outlook for maybe what we should expect, you know, as we progress through kind of the balance of the year in terms of any of the HCI entities, what, you know, appetite for DPOP might be or, you know, prospects for it?

Sure. The three carriers I mentioned earlier, Homer's Choice, TipTap, and Tail Row, each have been approved for 25,000 policies in October. And we'll, you know, We'll leverage our technology, as we've done in the past, to identify those greenhouses that you know that we focus on. So there'll be some that we want, and we'll be able to select those given our underwriting criteria.

Okay, great. And one last one, if I could, and I appreciate, based on kind of Kevin's remarks, that you may not be able to answer this, and that's fine, but I was just curious, you know, obviously a focus has been getting Exeo out on its own, standalone, so it can really thrive. You know, just the decision for IPO versus spin, if there's anything you can comment on. And again, if you can't, totally understand.

Hey, Matt, it's Mark. You know, we can't, you know, sort of in line with Kevin's comment, we can't really get too far into that. I mean, obviously, you know, Exio is a great company. It's done great work for us. Karen talked about the effect on our operations. You know, it's a tremendous asset for us. the way it's structured right now, sort of being tucked under HCI, it's not ideal for either evaluation purposes or competitive reasons. But, you know, we're very focused on that. We're really excited about it. We're excited about the future. But, you know, unfortunately, we just can't, you know, get into the details and pros and cons of one strategy over the other at this point.

Completely understand and appreciate all the answers. Thank you.

Thank you. The next question will be from Michael Phillips from Oppenheimer. Michael, your line is live.

Yeah, thanks. On the XCO thing, this isn't really related to the IDO process, but just a random question. You've talked in the past couple quarters, since you've started talking about this, of the benefits to XCO for being independent from Homeowner's Choice. I guess I wanted to ask on the flip side of that, what do you think are the benefits to Homeowner's Choice from being independent from XCO?

Great question. I would simply tell you that what we now have is people can focus on what they do. So HCI Group, ex-Exio, has some interesting opportunities in front of them, and we are not quite ready to talk about them on an open mic, but I think people are looking forward to what a pure insurance play might do in the coming years given the volatility in the property and casualty market on a national basis, yeah? So we have some great opportunities there as well.

Okay, thanks. Could you maybe just comment on the environment? Could you comment on what you're seeing in your condo business for the pricing environment?

I think we would confirm the same item that lots of other people would. I think you're talking about commercial residential. sure yeah that market that market is very soft continues to be soft but it is that it you know as karen mentioned this is nothing new i'm telling it's been this way for months but we're fine with it and we anticipate it and it's a very small part of our business and it's not you know a significant issue to us but i think it is the whole market is soft that's that's all news at this point.

Yeah, okay. And then just lastly, quick numbers just to confirm. Since 4Q's pretty sizable, favorable reserve adjustments, you haven't done anything since then, just confirming that?

No. No changes.

Okay. Okay, great. Thanks, guys. Congrats.

Thank you. The next question will be from Mark Hughes from Truist. Mark, your line is live.

Yeah, thank you. Good afternoon. Mark, you commented in the past on weather being an influencer on the loss ratio. Was this an unusual quarter from a weather standpoint, or was this more normal?

No, actually, I should just give you a little bit more color mark. If you go back to the second quarter of last year, compare that to the second quarter of this year, we have about 12, 12 and a half percent more policies now. And we actually had, I think, 40 or 50 fewer claims. But that's despite the fact that we actually had a little bit more weather in the second quarter of this year versus the second quarter of last year. So we had, I think, about 100 more weather claims this quarter, but 150 fewer non-weather So frequency is down, significant. I don't think it's, you know, I don't think it's an aberration. We had more weather in Q2 than we had in Q1. we had more weather in Q2 than we had in the last second quarter, but the loss ratio just continues to come down because the frequency is coming down.

Very good. I think in the last call and in the queue, you gave some summary, Exeo Financials, Revenue, and Pre-Tax Income. Is that going to be in the queue this time around? Are you able to share that on the call?

Yeah, so we won't go through it on the call, but it'll be the same as it always is in the queue, Mark. It's disclosed in the segmented information, and it's been there for quite a while. It'll be there. You'll see it tomorrow. Okay.

And then investment income was a little bit higher sequentially. Was there anything unusual there, or is that a good number on go forward?

That is, I think, a good number going forward. There's nothing unusual there. It just, I mean, it reflects, if you look at cash and invested balances at the end of Q2 compared to the start of the year, it's like $300 million higher because we generated $300 million of positive cash flow so far this year. So, you know, cash is, I think, $950 million or something like that at the end of Q2. So it's really just that. To this point, rates have been fairly flat, but just the invested balances are up significantly. So, and yeah, I think that's a pretty good number to project forward. Yeah.

And then what was your comment on interest expense post these developments?

Oh, just so we had a quarterly interest expense of on the convertible notes, which was, you know, significant and going forward, that's gone. So the only interest expense we'll have going forward is on the credit line and on on real estate loans. And I think our projection there is about $950,000 per order, which is, you know, about a third of what it's been in the past.

Yeah. How is the kind of the remaining policies that are available for takeout, how would you characterize the opportunity now versus the years? Two years ago, the $25,000, I think, is a lower number, and maybe that reflects that, but you've got across all three subsidiaries, you're doing $25,000. So I'm just curious how you'd characterize the potential this time around.

Yeah, Mark, so about the $25,000 pegs per carry, It just seems they're all financially healthy enough that they can aspire to those numbers. What they will do in practice is what Karen said is how many greenhouses can they find that makes sense for us to take. To your bigger question, the ratio of red houses to greenhouses has obviously dramatically shifted. rate, because if you recall things from the past, we had said there's about 500,000 policies that should remain in Citizens. So as you approach that number, the book gets a lot more redder than green, if you like, And that's occurring, but that's okay. We know what we're doing, and that's what Karen was alluding to, is to how the software runs.

On the gross premiums written, the tip-tap was a nice jump this quarter, 40 percent, homeowner's choice at 18 percent. Could you characterize how much of that was that kind of continuing takeout or renewal on takeout revenue? Is that just kind of a timing issue? Was there much or any voluntary in those numbers?

Not a lot of voluntary in there, no. It's largely, you know, it's the renewal of the existing book, renewal of the takeouts that we did, obviously. And the only thing you have to just be a little bit careful of when you're comparing quarter over quarter is in the second quarter of last year, we had – we did the core takeout, so gross written premium was a little bit higher in Q2 last year. But other than that, it's pretty comparative. It's up 18% quarter over quarter, something like that.

And just one more. Mark, you had used kind of a 70% net combined ratio. Is that normalized for the expense savings associated with the takeouts? Is that giving kind of a full load at this point?

Yes. Yeah. Yeah. So it was, yeah, it was, and that's the reason that, you know, it was 62% this quarter. The reason we're saying 70% is that that's normalizing for three things. It's got the full reinsurance load in it. It also has full policy acquisition expenses, because you remember, you've got a period of time where you're amortizing in premium that doesn't have any commissions on it. And then, you know, we've also allowed, you know, a little bit of wiggle room on the loss ratio if it drifts up, you know, a couple of points. But that's all captured in that 70% combined ratio, which should be normalized, fully loaded, you know, it's a non-CAT number, obviously. But that's once everything sort of normalizes out. Very good. Thank you.

Thank you. And once again, it will be star one if you wish to ask a question on today's call. The next question is coming from Casey Alexander from Compass Point. Casey, your line is live.

Yeah, good afternoon. And, Paris, it's funny. When you were making your comments about 18 years ago, before the call started, I was looking at the six-month diluted earnings per share of $10.57 and thinking to myself, geez, that's more than what the price of this stock was when we first met 18 years ago. So it is actually quite an achievement. I just wanted to clarify on the DEPOP, that is 25,000 policies each for each of the three entities or 25,000 spread across the three entities?

25,000 for each underwriter.

So a total of 75?

Yes.

Okay, great. And I'm curious about your comments. You know, where do you see some opportunities emerging outside of the state of Florida? And to a certain extent, how helpful will Exio be to HCI TipTap et al. in identifying those opportunities?

So this is what gets us very excited. I'm speaking as HCIX Exio, right? Because of the technology and everything else, we are starting to see shoots of opportunity in certain states. And we also see potential opportunities in some other really big states. but we are being very careful as to how we go at this thing because, to be blunt, we have a very good thing going. It's HCI-XXO, so you want to make sure you take your next steps carefully, but you want to, again, when we do them, we are trying to do this with a multi-year horizon, multi-year time frame in mind. So that's why we're trying to be level in our tone, but we are excited that just look at the numbers. This Exeo technology just keeps making us better and better, right? And you can no longer attribute it to what was being attributed to a couple of years ago because of the legislative reforms, right? That was three years ago now, and these numbers just keep improving, right? You know, back to your opening comments also, 18 years ago, you're right, right? You wouldn't have said EPS for two quarters would exceed the share price that we were talking about back then, yeah?

That's for sure. All right, thanks for taking my questions, and congrats on a good quarter.

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

Thank you. 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. Stay tuned. Thank you.

Thank you. At this time, this concludes our question and answer session, and this concludes today's call. You may now disconnect.